Why a new generation of investors is thinking twice about SGX

AS AN avid investor who has been putting money into stocks since he was 19, software engineer Daniel Khoo – now 30 – holds a very dim view of the local equities market.

“Having followed (the local equities market) for some time, my impression is that it is very slow, and liquidity is very bad. The bid-ask spread would be so wide that there would be no trade for hours at a time,” he says, adding that Singapore companies also have relatively smaller market capitalisations compared with global leaders.

“Why buy ST Engineering if I can buy Lockheed Martin?” He also points out that unlike previous generations, investors today can easily access the US and other equities markets through online brokerages.

He is not the only young investor who feels this way. While there are still some who prefer the stability of the local market, a lack of liquidity, representation in growth sectors and perceived excitement compared to other exchanges have led young adults to look elsewhere to invest their funds.

The US Federal Reserve’s rate cuts may have buoyed equities markets across the board, with the Straits Times Index (STI) reaching a 17-year high on Sep 23, but this may not be enough to entice young investors to return to home ground.

While experts believe that young investors are important to the vibrancy of an equities market, different headwinds stand in the way of making the Singapore Exchange (SGX) more attractive to this cohort of investors.

Losing appeal

Interest in retail investing in Singapore’s equities market appears to be slowing compared with other exchanges.

According to Tiger Brokers’ data, 21.4 per cent of its users traded on the SGX as at June 2024, compared to 25.3 per cent in 2022 and 32.5 per cent in 2020.

Meanwhile, 89.5 per cent of the brokerage’s users traded US stocks in June 2024. Millennials and Gen Z users aged 18 to 37 make up 63 per cent of the brokerage’s user base.

A straw poll conducted by The Business Times’ young audience team, thrive, also showed that while 34 per cent of respondents have made at least one Singapore stock trade, 57 per cent have traded at least one US stock.

Case in point: For 28-year-old corporate banker Benedict Wong, just 0.2 per cent of his portfolio is invested in the local benchmark STI, while 40 per cent of his portfolio is invested in the S&P 500 index.

“I think news about the biggest companies in the world out there is so much more exciting,” he says.

He holds US exchange-traded funds (ETFs) in sectors such as electric vehicles and semiconductors, which he perceives as having some momentum behind them.

“Singapore just does not have (much of) this type of exposure,” he says.

Tiger Brokers’ Singapore chief executive Ian Leong says he has noticed that investors tend to buy specific counters on the US market, but gravitate towards ETFs in Singapore.

When investors are deciding what to invest in, they need to first be able to relate to the sectors that local listed companies belong to, he says.

“If, out of the blue, you come up with an ‘XYZ’ counter that I’ve never heard of… I need to take the extra step to actually go and understand it,” he points out.

In addition, younger investors are likely to have a higher tolerance for losses since they have time to recover from such situations, says KPMG partner and Asia-Pacific head of private equity Andrew Thompson.

Since the local stock exchange is largely known for its exposure to banks and real estate investment trusts (Reits), which are typically more yield-driven stocks, the young may be less likely to invest in Singapore equities.

Thompson says: “If you’re investing in a low-growth Reit that generates some 3 to 4 per cent in dividend or capital growth per year, it’s not very exciting compared to watching more speculative investments double or (treble).”

He adds that younger investors who are comfortable with taking more risk may be more interested in artificial intelligence (AI) and tech-related counters.

It does not help that the STI has underperformed global benchmark indices.

Between August 2014 and August 2024, the STI yielded total returns of 3.3 per cent annually, compared to the 10 per cent and 13.2 per cent returns of the MSCI World Index and S&P 500, respectively.

Still, it is important for every generation to be educated on the purpose of the exchange and the opportunities it presents, says Thompson. “Sometimes, it takes those sorts of cornerstone government-linked IPOs (initial public offerings) or asset sell-downs to create a generation of investors.”

Notably, Generation X (those born between 1965 and 1980) was exposed to the listing of companies such as Singtel. The company debuted on the then-Stock Exchange of Singapore on Nov 1, 1993, with more than 1.4 million Singaporeans holding shares in the company.

Further tranches of Singtel shares were also sold later, including 804 million shares in 1996.

However, the younger generation of investors has not been exposed to similarly large public listings.

Gold rush?

These days, young investors such as 26-year-old strategy planner Elin Wan are no stranger to US tech stocks.

She owns the “Faang” stocks – Meta (formerly known as Facebook), Apple, Amazon, Netflix and Google.

She tends to sell her stocks once she’s made about 20 to 30 per cent in returns, while she holds on to her losers. She is agnostic about where her stocks are listed.

She has also bought meme stocks such as Gamestop, which experienced booms and busts in its share price during the Covid-19 pandemic due to a short squeeze mounted by online influencers.

The meme stock saga, which drew young people’s attention in 2021 through social media platforms such as Reddit and TikTok, has been valorised as an event in which the common man beat Wall Street. Hedge funds that shorted the stock lost money on the trade while retail investors piled in and saw their shares and options shoot “to the moon”.

“I think it’s kind of like a hype thing too, so I just took the risk,” Wan says. “To me, I treat it a bit like crypto. It’s a bit different from… companies (where) their services have inherent value.”

She adds that she has doubled her capital trading Ethereum and Bitcoin between February 2022 and June 2024.

CGS International Securities Singapore chief executive Malcolm Koo says that while there is a lot of information available online, it does not necessarily mean that younger investors are better informed.

“Sometimes it’s very difficult to differentiate what is considered good content and what is considered bad content,” he says.

He adds that young investors should be trained to walk away from investments that appear to provide great returns because they also come with proportionately higher risks.

“There will be some successful cases… but there will be more disappointed investors than successful investors,” he says.

To improve investor literacy, CGS International Securities Singapore partnered SGX to run a national investment challenge for tertiary students in 2022. In 2023, the competition was expanded to Malaysia, Indonesia and Thailand, and attracted more than 5,000 contestants.

As part of the challenge this year, the contestants will need to complete e-learning courses that teach topics such as portfolio construction and fundamental analysis. They are then judged on criteria such as returns and risk management strategy.

Koo hopes that by educating the younger generation on the basics of investing, their odds of making good returns improve.

“It’s also a lifelong journey in terms of education because markets change, the tools that are available to you change,” he says.

On this front, SGX has also been reaching out to engage young adults as they transition to the workforce. It hopes that this will drum up interest in local stocks.

SGX Group director of research and financial literacy Emelia Tan says that the company has been working with content partners to improve financial literacy among the young.

“Participants shared that they felt more confident about taking the first step to start investing and learning more along the way,” she says.

She adds that the company has engaged more than 21,000 participants through about 180 SGX Academy and financial literacy investor outreach events which cover a range of topics. Many of these participants are younger individuals who are in their first jobs or have young families.

For the risk-averse investor

Despite the decline in interest, there are still young people who wish to invest in the SGX.

Civil servant Jade Zhang, 28, began investing in 2020 when markets fell significantly during the Covid-19 pandemic and she felt that it was a good time to start.

She started investing with robo-advisers AutoWealth and StashAway because she “did not feel secure” in picking specific products to invest in.

Since then, she has invested about a third of her portfolio in the STI because it is a market that is easier for her to follow and understand.

“To me, everything on the SGX is meant to be safe bets – such stocks are meant to be stable investments that I can count on as long as we’re not going through a global recession,” she says, adding that she is not looking to pick specific stocks on the local market because she’s not trying to “make a quick buck”.

The STI has benefited as it is weighted heavily towards the three local banks. The lenders have done well as interest rates rose rapidly in the last two years.

Gerald Wong, founder and chief executive of financial literacy website Beansprout, says that the local stock market can be a good starting point to learn about investing without having to face too much volatility.

Furthermore, more advanced investors may adopt a barbell strategy, where the STI and certain stocks can form the yield portion of such an approach while they search for outperformance in other markets.

Wong notes that the local equities market may have faced competition from effectively risk-free investments, such as local Treasury bills (T-bills), in the last two years with rising interest rates.

At the Sep 26 auction, the local 6-month T-bill had a cut-off yield of 2.97 per cent, down from a 30-year high of 4.4 per cent in December 2022.

“Simplistically, that is why the unit prices of Singapore Reits have come down, and part of the reason is... you have got safer instruments that actually already offer a decent yield,” Wong says.

He adds that local companies may have to update the way they engage investors beyond annual general meetings, as younger cohorts of investors consume information differently online.

This sort of engagement could be done through online brokerages, or through social media and even podcasts. However, companies will have to balance these initiatives with the need to follow listing and capital markets rules.

“Forward-looking statements, blackout periods – I think these are definitely things that investor relations teams need to take into consideration in some of these investor engagements,” he says.

Searching for growth

Even if existing issuers do better at engaging investors, the local equities market could benefit from an influx of growth companies.

In recent years, companies such as PropertyGuru, Ryde and Grab have chosen to list on the US stock markets for better valuations, although their performances post-IPO have been middling at best.

Meanwhile, SGX has seen fewer listings, with no IPO listings on the mainboard year to date.

The share price of livestreaming platform 17Live, the last company that listed via de-Spac (special purpose acquisition company) on the mainboard, declined to S$1.16 on Sep 20 from its offer price of S$5.

The state of the local stock exchange has not escaped the notice of authorities.

A high-level review group has been set up to recommend measures to revive the ailing stock market. At the 25th anniversary event of the Securities Investors Association (Singapore) and the launch of the Corporate Governance Conference 2024 on Sep 16, Transport Minister and Second Finance Minister Chee Hong Tat said that the Monetary Authority of Singapore is ready to make “bold yet necessary changes” to the equities market after carefully reviewing their trade-offs.

KPMG’s Thompson says that this issue of declining listings is not just a local problem but a global one.

“The evidence is that private markets and alternative assets such as private equity, infrastructure and real estate have been outperforming the listed markets, so a lot of investors globally have been basically changing their mix between the listed and the unlisted markets,” he says.

Even so, he says, a solution could be for the SGX to partner or collaborate with larger markets around the world to have higher-growth stocks make secondary listings in Singapore.

“You might have the opportunity to take the trading cycle from European or US hours to turn it into... 24-hour trading if partnerships like that are consummated,” he says.

Interactive Brokers Singapore chief executive Lin Yujun says that while dual listings may make sense for the exchange, companies will face additional compliance costs.

“Companies need to figure out what it is that the Singapore market can bring that…their primary listing market cannot,” he says.

He notes that it is important for the exchange to be able to attract higher-growth companies, especially those from the new economy and tech sectors.

“The single driving force of societal evolution and the way we work, the way we improve production, is really technology,” he says.

He adds that he has seen “substantial interest” in pharmaceuticals and AI-related companies from investors as a result of exciting products created from new research and technology.

As it stands, the top 30 stocks represented by the STI are largely in financials, real estate and infrastructure. Even if the STI were to be expanded to cover another 70 stocks, Lin is not sure that this will necessarily lead to increased liquidity and interest in the markets.

“SGX will have to find that story to tell,” he says.