Why SGX continues to have difficulties

Singapore has become one of the two most important financial centers in Asia alongside Hong Kong and the region’s top fintech hub. Yet Singapore’s strengths as a financial center do not extend to capital markets. In this segment, it is one of the weakest performers in the region. This has been consistently true in recent years, despite efforts to improve the situation.

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. In 2023, SGX attracted just six listings, down from down from 11 in 2022, and raised only US$35 million.

In the first half of 2024, SGX had just one new listing. Cancer treatment provider Singapore Institute of Advanced Medicine (SAM) Holdings raised US$20 million from its market debut in February, making it one of the smallest deals of the year in the Asia-Pacific region.

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. Additionally, 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. Further, a clear vision for SGX has yet to be promulgated – in contrast to other aspects of the city-state’s financial ecosystem.

SGX has tried to improve the situation over the past few years, but none of the measures has been effective. Notably, SGX tried to take advantage of the SPAC boom by making such listings possible in 2021, but investor demand for SPACs worldwide ended up cratering almost as fast as it surged. Many SPAC listings performed poorly, while regulators moved to close loopholes that made the blank-check mergers so easy in the first place. As the Michigan Journal of Economics noted in April, “Beginning as an innovative circumvention to the traditional Initial Public Offering (IPO), regulatory loopholes were the founding principle of SPACs.

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, 2023 with its inaugural issue being one linked to Hong Kong-listed shares of Alibaba.

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