The new iEdge Singapore Next 50 Indices need refinement

I AM writing to express my disappointment following the announcement of the new iEdge Singapore Next 50 Indices.

While the initiative to improve visibility for the mid-cap segment is laudable, the underlying methodology – which heavily incorporates liquidity criteria such as daily turnover and free float – appears to mistakenly prioritise tradability over genuine investability. While tradability is important for stocks beyond the Straits Times Index’s 30 companies to attract fund managers, the priority should unquestionably be investability.

For far too long, a company’s inclusion in an index has been based on its size; I believe it should be earned through performance and governance, and not merely assigned by market capitalisation. By focusing on liquidity, the index risks being a passive tracker of trading activity rather than an active driver of corporate value.

To address the perennial valuation discount faced by many listed Singapore companies, our benchmarks must be designed to incentivise better capital allocation and stronger corporate governance, not just trading volume.

A model worth referencing is the Corporate Value-up Program in South Korea, which established the Korea Value Up Index.

This index rightly emphasises investability, selecting companies based on key value indicators such as achieving good price-to-book (P/B) ratios, high return on equity (ROE), and documented shareholder-friendly corporate actions such as consistent dividends or share buybacks.

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The crucial distinction is that these criteria provide clear, measurable targets for management teams. Companies can actively work towards improving their P/B and ROE to gain index inclusion, creating a positive feedback loop for better performance.

Furthermore, this approach empowers shareholders to engage with and question management teams directly on the progress of their value-up initiatives. If a company fails to make the index, it faces market pressure to improve its fundamentals and governance.

By contrast, an index primarily focused on liquidity provides little guidance or incentive for fundamental reform.

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I urge the Singapore Exchange to complement the current Next 50 Indices with an investability-focused benchmark, similar to the Korean model.

This would be a significant step towards unlocking real, sustainable value in Singapore’s equity market and truly benefiting long-term investors.

LEE CHIN WAI