SGX has struggled to find a strong niche

Written by Kapronasia || December 18 2023

There is a disconnect between Singapore’s ascendancy and the performance of the Singapore Exchange (SGX). Indeed, the city-state has in recent years solidified its status as Asia’s premier fintech hub as well as the most important financial center in Southeast Asia. In some aspects of financial services, Singapore has surpassed its long-time competitor Hong Kong. Yet definitely not in capital markets. Despite a subpar IPO year for the Hong Kong Stock Exchange (HKEX), it has still been far more active than SGX.

SGX has struggled to find a strong niche, especially in recent years. It has the unenviable position as often seeing more delistings than listings. That was true in 2022 as well as the decade from 2009-2019 when 279 firms listed but 302 exited the exchange.

The IPO market in Singapore is so small that its total listings thus far this year have raised just US$29 million, just over 1% of the US$2.7 billion raised by Hong Kong IPOs in the first three quarters of the year. What is the all more remarkable is that 2023 is not a good year for listings by Hong Kong standards.

We see SGX’s problem as, well, a bit complicated. First, though Singapore is a growing financial center, it has no natural reservoir of promising companies from which it can source deals. Hong Kong, even facing more competition from mainland exchanges, still can regularly tap the massive mainland market. At the same time, the big tech companies that have come out of Singapore in recent years, Sea Group and Grab have made strategic decisions to go public in New York and not on SGX. Second, the lackadaisical performance of SGX perpetuates a vicious cycle. If you cannot show good results to companies and investors, they are not likely to flock to your exchange. Third, a clear vision for SGX has yet to be promulgated – in contrast to other aspects of the city-state’s financial ecosystem.

There are some signs of change, though we will have to be patient about the results. For instance, SGX changed its rules to make SPAC listings possible in 2021, but thus far, SGX has not become a magnet for SPACs. There was one SPAC listing earlier this month though.  Live-streaming platform 17Live Group debuted on the mainboard of SGX after its business combination with the city-state’s first SPAC, Vertex Technology Acquisition Corporation (VTAC). As of its first trading day on Dec 8, the estimated market capitalization of 17Live was about S$886.9 million.

It could be a while before SPAC activity picks up on SGX. SPAC IPOs fell 76% in the first half of 2023 compared with the same period a year earlier, according to risk advisory firm Kroll.

Another way SGX is trying to boost trading volumes is through the issuance of “structured certificates” – financial instruments issued by a third party that are based on underlying assets like a stock or equity index. SGX became the first exchange to offer listed structured certificates on Aug. 30, with its inaugural issue being one linked to Hong Kong-listed shares of Alibaba.

While regulators seem sanguine about this development, it is too early to say whether the introduction of structured certificates will have a significant impact on market activity.