Why was EQDP necessary in the first place?
Market foundations must be strengthened, improving transparency, liquidity, governance and information flow to boost confidence
THERE has been a fair bit of debate recently over how the momentum generated by Singapore’s Equity Market Development Programme (EQDP) can be sustained because share prices have risen, liquidity has improved, and confidence has returned to the local bourse.
Yet, a more fundamental – and more uncomfortable – question deserves to be asked: Why was the EQDP necessary in the first place? If markets allocate capital efficiently, why do policymakers across the world have to regularly intervene to rescue, repair or re‑engineer them?
After all, markets are supposed to reward productive enterprise, discipline weak companies and channel capital to its best use. The reality, though, is modern equity markets are riddled with structural distortions and biases.
“The EQDP is actually an admission that Singapore’s market, which is now being touted as a safe haven, was not functioning as advertised – even though for decades it had been known as such.”
Passive investing dominates flows, short‑term trading overwhelms fundamentals, and liquidity increasingly clusters in a narrow group of large, well‑known stocks. Locally, this would obviously be the three banks.
Smaller and mid‑sized companies, even those with sound businesses and governance, struggle to attract research coverage, institutional attention or fair valuations.
The EQDP is actually an admission that Singapore’s market, which is now being touted as a safe haven, was not functioning as advertised – even though for decades it had been known as such.
Over the past 20 years or so, liquidity had thinned, valuations had lagged that of peers, and promising companies were opting to list overseas.
Rather than wait indefinitely for an invisible hand to correct these shortcomings, regulators were forced to intervene – funding research, pumping money into unit trusts and strengthening investor engagement.
Singapore is not alone. On Wall Street, for example, investors have long believed in the existence of a “Fed put” – the expectation that the US Federal Reserve will loosen policy or inject liquidity if markets crash.
There is little doubt that this belief has shaped risk‑taking behaviour for decades on Wall Street, and has become a powerful, if unofficial, stabiliser of asset prices.
South Korea offers another instructive example. Despite globally competitive companies, its stock market suffered from chronic valuation discounts.
The government’s recent “Value-Up” programme, combining tax incentives, governance reforms, billions in cash injections and shareholder‑return enhancement measures, is an explicit attempt to correct market failures that private actors have been unable – or unwilling – to fix.
Several other examples can be found, but the point is that without government stimulus and policy support, many equity markets would likely be more volatile, less inclusive and less effective at allocating capital.
No matter how much academics and industry players insist that markets should be left alone to perform their functions with minimal regulatory intervention, the reality is different: Markets are not natural phenomena, but are instead institutional constructs with inevitable biases.
This does not mean policymakers should permanently prop up share prices or shield investors from losses. Poorly designed intervention can inflate bubbles and entrench moral hazard.
The S$5 billion EQDP grant, for instance, should be one-off instead of an annual affair that some have suggested.
The real challenge, therefore, is how to convert policy‑driven momentum into a durable ecosystem.
The focus should be on strengthening the market’s foundations, such as improving transparency, liquidity, governance and information flow to enhance confidence.
That will require deeper research coverage, a broader investor base and more links with overseas markets – all underpinned by recognition that markets do not function as theory dictates.
