Restoring retail investor confidence is key to reviving the stock market
The poor state of the local stock market has been the
subject of much discussion over the past 2-3 years. Declining liquidity, a
rising tide of delistings and a dearth of large, good-quality replacements are
among the problems the market faces. It is said that the absence of active
daily trading married to a relatively small size means there is a very real
risk that the Singapore market will fall off the radar of big international
money - if it already hasn't.
Comments
02 November 2016
The poor state of the local stock market has been the subject of much discussion over the past 2-3 years. Declining liquidity, a rising tide of delistings and a dearth of large, good-quality replacements are among the problems the market faces. It is said that the absence of active daily trading married to a relatively small size means there is a very real risk that the Singapore market will fall off the radar of big international money - if it already hasn't.
There are many external forces that have contributed to the weakness - a slowing China, rising US interest rates, soft global earnings, Brexit, the oil price slump, as well as weak commodity prices and worry over the diminishing effectiveness of monetary policy in developed countries to provide the necessary economic stimulus.
But there is also a nagging feeling that the prolonged bear market here is not just because of external factors but also because of deep-seated internal structural problems. One major complaint from stockbrokers is that the authorities had gone overboard in tightening the rules in the aftermath of the Lehman Brothers crisis of 2008, so much so that trading activity has been choked off whilst compliance costs have been raised so high that it is now prohibitively expensive to list or stay listed on the Singapore Exchange (SGX).
As a result, remedies put forth all relate to loosening regulations in order to make the market more commercially acceptable. Last year, representatives from the remisier community met with Monetary Authority of Singapore (MAS) officials and proposed several changes to the market's microstructure, such as doing away with clients having to sit for exams when trading sophisticated instruments, streamlining short-selling and buying-in, introducing a cap on clearing fees, widening the bid-ask spreads and even the formation of a third board for moribund companies.
More recently, SGX is being urged to abandon quarterly reporting (QR) altogether and to amend its listing rules to make way for dual class shares (DCS), the former in order to reduce compliance expenses and the latter to widen the types of companies which could list here. The problem is that many of the suggested cures are simply procedural enhancements that may or may not have a lasting impact on liquidity. Similarly, compromising governance and disclosure by abolishing QR and introducing DCS may not be in the longer-term interest since such moves could undermine the market's reputation for strong governance.
Whatever actions are eventually taken, it is crucial to bear in mind that the single most important ingredient necessary for robust trading anywhere is confidence. Markets will thrive if investors are confident that their interests are being looked after and if traders believe wholly that the playing field is as level as possible, so that everyone has an equal chance of making money.
In the case of the local market, a big problem is that much retail confidence was lost because of a succession of major governance lapses, starting with the devastating crash of China stocks or S-chips in 2006-2009 and more recently, penny stocks in 2013. There have been some progress in the past few years restoring that lost confidence but those efforts must continue - whether sentiment is weak or not.