Reimagining Singapore’s place in the global equity market

WHEN things are not working as well as we would like, we typically have three choices: criticise and complain; accept it and live with it; or try to do something about it.

This time, I have chosen to go with the third. I am privileged to be part of the Monetary Authority of Singapore (MAS) review group’s Enterprise and Markets Workstream, where we aim to catalyse meaningful changes for Singapore’s equities market.

It is not the first time people have asked: “How can we fix the Singapore Exchange?” or “What can we do to make the SGX better?” While these are valid questions, I believe they may lead only to incremental improvements. If we truly want a breakthrough, we may need to reframe the question.

What if we asked: “What can the Singapore equities market become the best in the world at?” Answering this requires us to be bolder, and I believe boldness is exactly what we need to make a real difference.

We can take some inspiration from Nasdaq, which stands for the National Association of Securities Dealers Automated Quotations. Launched in 1971 as the world’s first electronic stock market, it is now the world’s second-largest exchange by market capitalisation, behind the New York Stock Exchange (NYSE). It achieved this by becoming the go-to exchange of high-growth technology companies. While this seems obvious today (hindsight tends to be 20/20), it was not so back then.

High-growth tech stocks were deemed riskier than the more established, stable companies on the NYSE. This was especially evident when the dotcom bubble burst, with the Nasdaq index falling 77 per cent from 5,048 to 1,139 between March 2000 and October 2022.

Yet Nasdaq survived and thrived. Why? Because ultimately, the sector and the companies came through.

Today, it is home to the five most valuable companies in the world – Apple, Microsoft, Nvidia, Alphabet and Amazon. It is the dream listing venue of every startup. Unfortunately, it cannot accommodate every successful startup.

When you have trillion-dollar companies on your exchange, how much attention do companies with US$3 billion or less market caps really get? When there is strong market consensus on what the best high-growth tech companies should look like, how open and curious will investors be about companies that do not quite fit the mould?

So what can the Singapore equities market be the best in the world at? This is anyone’s guess, but here is mine: Singapore could lead the world in being the best equities market for companies in Emerging Market Innovation and Sustainability (EMIS).

Let me break this down:

Emerging markets

Singapore is ideally placed, with easy access to the young, growing, upwardly mobile population of 2.7 billion in South and South-east Asia. These markets still present countless problems to solve, which translates into opportunities to build unique and interesting companies.

Apart from India, local exchanges are small with limited liquidity, and they likely are not geared to value and support unique, fast-growing companies. So even if any of these companies grow into market leaders, where can they really list?

Innovation

I purposely did not use the word “technology” because that is probably more relevant for developed markets. In emerging markets, you will typically need innovation – which often means a combination of people, process and technology. It may not be the most cutting edge, but it is about integrating hardware and/or offline components in ways that work for these markets.

Silicon Valley might look down at this approach, but I believe it is the right one for emerging markets. Developing unique combinations, techniques and models can be the hallmark of emerging market innovation. This is not too different from how China created its own brand of innovation, distinct from the US, leading to its own models of success.

Sustainability

And I do not just mean climate. I am talking about all the UN Sustainable Development Goals, “a universal call to action to end poverty; protect the planet; and ensure that by 2030, all people enjoy peace and prosperity”.

Emerging markets have important problems to solve, and these problems offer tremendous opportunities to create new businesses. These companies will not look like companies from developed markets – but that is exactly why they are exciting.

Leadership role

I want to emphasise the conjunction “and” in Emerging Market Innovation and Sustainability. The companies we will promote will be at the intersection of all three areas.

What can Singapore offer to earn a leadership role and win in this space?

Access

Singapore is already the corporate headquarters of many potential EMIS startups in South and South-east Asia. If we work to truly own this market position, it is not hard to imagine the best startups from other emerging regions such as Africa, Eastern Europe, and South America showing up here. It is similar to how tech startups worldwide seek to list on Nasdaq.

Governance

Singapore’s reputation for governance is well-established, and this is where we can easily create significant value. Simply put, if we can ensure these emerging market-focused startups meet Singapore’s world-class governance standards, we can create a trust premium.

Insight

This area will likely require the most work, but it absolutely falls into Singapore’s wheelhouse. We have enough intellectual horsepower here. Our students are known to ace global tests, and our universities and research institutes rank among the world’s best. Alongside our local population, we have attracted global talent who have chosen Singapore as their home.

The key is to focus some of this talent on EMIS and build stronger bridges into emerging markets, creating new knowledge, insight and understanding. This could become a whole new industry, enabling us to create alpha by investing in undervalued, underappreciated companies. Ultimately, we can be rewarded for bringing them into the spotlight and helping them succeed.

Where do we begin?

We change our mindset. This will be the first step towards boldness. We must accept that the days of believing it is easy to make big money are over. It is time to let go of the notion that simply copying “proven success models” from more developed markets and burning cash to grow at all costs is the only way to attain venture-grade returns.

Rising interest rates have forced a reality check. The opportunity now is to explore opportunities with openness and curiosity, to have the courage to think for ourselves and to act on our own conviction, and to be savvy enough to get it right enough of the time. We must also be ready to accept that just like Singapore, small can be beautiful and building anything of significant long-term value will be difficult. If we embrace this, we stand a chance.

We commit. Singapore already boasts the third-highest gross domestic product per capita in the world, but we must avoid complacency. EMIS could serve as the next major growth engine for Singapore, presenting a unique window of opportunity. We cannot afford to over-analyse or hesitate. If we do not seize the “best at EMIS” position now, another market will.

Moreover, if our current crop of startups fails to achieve successful exits, it will undermine the ability of venture capital firms to raise new funds, potentially stalling the vibrant ecosystem we have worked hard to build.

Committing to EMIS will require substantial investment, patience and perseverance. But as I often say, never bet against Singapore once it sets its sights on a goal. With the right focus and determination, I am confident Singapore can lead in this space – just as it has in so many others.

We succeed. Every journey of a thousand miles begins with a single step. In this case, I imagine it may take four to five successful EMIS initial public offerings (IPOs) to get started. These will likely be differentiated, perhaps even first-of-its-kind EMIS startups, with defensible business models and solid unit economics.

They will have scaled enough to be profitable or close to it. Their market caps could range from US$300 million to US$3 billion, but they will be priced sensibly so there is still upside for IPO investors.

Their growth prospects will need to be strong enough to attract long-term investors. If the first few listings succeed, the virtuous cycle can begin.

While I have my conviction in Emerging Market Innovation and Sustainability, I recognise that there are many paths forward, each with its own risk/reward balance. There are no silver bullets. However, I also understand that if you try to be everything to everyone, you end up serving no one.

I leave you with the same question: What could Singapore’s equities market be the best in the world at? And if you care enough to do something about it, please do. If we work together to find the right answer, it could have a profoundly positive impact on our country’s future.

The writer is managing partner at Wavemaker Partners