Why Singapore retail investors shun most locally listed stocks
A ROUTINE visit to my bank shortly after I moved to Singapore more than three decades ago sticks in my mind. The teller suggested an investment in a US equity fund.
Had I taken up the suggestion, my savings would have grown by more than 10 per cent a year, albeit not without volatility. That is, US$1,000 invested in the S&P 500 in 1990 would have grown to more than US$32,000 by end-November 2024.
A robust equity market goes a long way to charge up retirement savings. Its wealth-enhancing effect also wields multiplier benefits in terms of boosting consumption and business confidence, as well as helping to anchor activities in Singapore, such as fund management and other services.
The Singapore stock market sprang to life this year and is expected to deliver double-digit returns by the year’s end. But this stellar performance is the exception in its history. The market has languished for several years. Efforts to figure out just how to catalyse animal spirits in the stock exchange have now taken on greater urgency.
In August, the Monetary Authority of Singapore established a review group to look into moves to address five key issues, including low liquidity and how to attract listings. The Securities Investors Association (Singapore) has also sought views from the public on their experiences.
By most measures, Singapore has done well as a financial hub, ranking highly as a global financial centre, commodities trading hub and foreign exchange market, among others. But in terms of stock market capitalisation globally, it is number 23, according to the World Federation of Exchanges. It also lags the region in terms of initial public offers; there were only four this year, all on the Catalist platform.
Measures to raise liquidity, which helps to improve valuations and attract listings on the Singapore Exchange (SGX), are surely necessary. But I believe retail investors are behaving rationally when they shun the Singapore market, except for stable bank stocks and real estate investment trusts, both of which pay steady dividends.
There are at least four reasons. First is Singapore’s ageing demographic. As investors get older, their ability, desire and capacity to take risk decline. Asset allocation turns more conservative, less into stocks and more into fixed income.
Second is the need for diversification. Retail investors here are already heavily exposed to the Singapore economy and assets, through their careers, properties, deposits and amounts in the Central Provident Fund. Their liquid portfolios should be more exposed to global assets, and less into a narrow segment like Singapore stocks.
Third is a growing affinity for professionally managed investments via funds. This is a good thing and helps to mitigate single-stock risks. Robo platforms like Endowus, which offer model portfolios at low fees, have helped to solidify the trend.
There are of course exchange-traded funds (ETFs) listed on SGX. But like stocks they are stymied by low liquidity and wide spreads. Why invest in an ETF on SGX when you can invest in US-listed ETFs directly through a regulated broker? We have not even gotten into the significantly lower costs of US ETFs.
Four, investors’ poor experience with Singapore stocks is a high hurdle. Scandals relating to S-chips and penny stocks and subsequent delistings have caused permanent loss of capital, leaving deep scars. Older investors – and even younger ones – should rightly avoid anything that could cause permanent loss of capital.
To be sure, improving liquidity and the quality of listings will help. Plus of course, listings that truly help to diversify Singaporeans’ savings. Until then, rational behaviour should reign.
