(Bloomberg Markets) – Robson Lee had a decision to make. During his more than two decades as a Singapore-based financial markets lawyer, he has helped more than 30 companies register on the country's stock market, putting everything on the market. chain of groceries to a pawnshop. Things had been good, but they were starting to dry up. Lee decided that he should go out. "I saw the decline," he says. "That's why I moved."

That was in 2014, when more companies left the Singapore Stock Exchange than joined, a value of 8.4 billion Singapore dollars ($ 6.43 billion) having disappeared from the public market. Lee, now 50, quit his job and became a partner in the Singapore office of US law firm Gibson, Dunn & Crutcher LLP. Although he still works on SGX lists, he spends more than three quarters of his time helping Asian companies restructure and buy assets.

The fortune of exchange has only worsened. Over the last five years, the number of listings in the market has exceeded the number of listings in the market, which counted 741 companies at the end of December 2011, up from a peak of 782 in 2010. In 2018, the funds obtained from SGX's initial 15 public offerings, excluding the custodian revenues fell to S $ 710.6 million, while 19 companies left, representing a net market outflow of $ 19.2 billion Singapore. As money left public markets, Singapore has strengthened its position as a leading wealth hub in Asia, with private banks overseeing more than $ 2 trillion in assets and offering opportunities alternative investment in structured products, real estate and private equity.

Most companies that have left the stock market in recent years are well known in Singapore. They range from GLP Pte., One of the largest warehouse owners in the world, to Osim International Pte., The largest Asian manufacturer of massage chairs. Some leaders who have deprived their companies of their private interests, lamenting what they consider low valuations in the city, are looking for more liquid markets that can generate higher prices. According to Lee, for example, the manufacturer of sofas Man Wah Holdings Ltd. was privatized in September 2009. In six months, it was republished in Hong Kong at approximately eight times its market value.

"If you think of Asia's center of gravity and its orientation, everything is moving towards mainland China"

Chew Sutat, head of equities and fixed income at SGX, says delisting is a global trend. Moreover, he says, this is a healthy market function that eliminates weaker companies. According to Chew, unlike some stock exchanges, SGX does not abstain from striking out zombie companies just to maintain their numbers.

But that does not tell the whole story. At the end of last year, the market capitalization of companies listed on the Singapore Stock Exchange had decreased by 97.5 billion Singapore dollars, or 14%, compared to the end of 2014, according to SGX data. The average daily turnover of the stock market has been halved since 2007. "These trends are worrying," says Ngoh Yi Sin, an analyst at CGS-CIMB Securities International Pte in Singapore.

More worrying perhaps, some local champions completely bypass SGX. Take the case of the game company Razer Inc., one of the few recent successes in the field of consumer technology, led by Singaporean CEO Tan Min-Liang and backed by the GIC Pte Sovereign Fund . When it went public in November 2017, it opted for Hong Kong, which benefited greatly from its proximity to China and its "communication channels", authorized cross-border investment channels, Mainland China.

While Singapore and Hong Kong compete to become the largest financial center in Asia, the country of Southeast Asia has always lagged behind in terms of enrollment because it has a smaller pool of national companies and can not count on any backcountry. And the gap widens as Hong Kong strengthens its position as a favorite place for Chinese companies. Hong Kong raised $ 33.5 billion through IPOs in 2018, more than any other stock market, following the arrival of a big name in the market. China Tower Corp., a state-owned infrastructure company, raised $ 7.5 billion in the largest IPO at the time in two years. The smart phone maker Xiaomi Corp. raised $ 5.4 billion and Meituan Dianping, a food retail giant supported by Tencent Holdings Ltd., purchased $ 4.2 billion.

The Hong Kong market is now much larger and more dynamic than Singapore's, and the two can not even be compared, says Tham Tuck Seng, PwC Financial Markets Manager, Singapore. The imbalance is virtually impossible to correct, as companies naturally move towards larger and more liquid markets. "These are two different fish," says Tham. And it's not just Hong Kong that has overshadowed Singapore. In 2018, even regional trade in Southeast Asia left Singapore in its wake: the Ho Chi Minh Stock Exchange in Vietnam had raised $ 2.9 billion; Thai stock market, 2.6 billion dollars.

At the same time, the Shanghai and Shenzhen markets have become much more accessible to foreign investors. James Thom, Asian Equity Fund Manager at Aberdeen Standard Investments Ltd. in Singapore, said his company had sold its stakes in Singapore to buy Chinese A shares over the past three years. "It's home to good quality companies," he says in Singapore. But, he says, "if you think of Asia's center of gravity and its orientation, everything is moving towards mainland China."

Singapore once seemed on the verge of becoming the gateway for the investor from the public markets to the emerging economies of Asia. However, in recent years, Southeast Asian companies have chosen to trade on their own stock exchanges, Hong Kong recovers a large portion of the portfolio of Chinese securities listed on the stock market and markets such as Shanghai and Shenzhen open to foreign investors through stock market relations with Hong Kong.

The world still sees Singapore as a remarkable achievement: The island nation Lee Kuan Yew has become the third richest country in the world in a single generation. A low taxation regime, transparent legal structures, a highly educated workforce and a welcoming attitude towards multinational corporations have helped make the city one of the main financial centers. of the world, despite its small size (about half that of Los Angeles). ) and population (5.6 million). Singapore, with its ability to attract foreign investment, has even sometimes been cited as a model for Britain after Brexit.

But the fate of the stock market – once the undisputed power of Southeast Asia, expanding its field of action in China – raises questions. While China is economically outperforming most of the world, mainly for the benefit of the Hong Kong capital market, what about the Singapore market? And where does it leave the country?

"If you think of Asia's center of gravity and its orientation, everything is moving towards mainland China"

The Singapore Stock Exchange dates back to 1973, when it was separated from the Malaysian Stock Exchange. At the end of 1999, 335 companies were listed in the main table. Shortly after, the stock market moved into its iconic headquarters, the two-tower SGX center of Shenton Way, home to some of Singapore's largest financial institutions.

In the 2000s, SGX used many Chinese companies. With a population of more than 70% of Chinese ethnic groups, the city-state has become a natural meeting place for these companies. The so-called S-chips, Chinese companies listed in Singapore, continued to dominate the IPO market up to a series of notorious scandals in the 2010s, similar to the frauds discovered by Chinese listed companies. reverse control in the United States. Singapore, eager to host foreign listings, the requirements imposed on companies to join the stock market had been relaxed. Some of them were fraudulent, says Mak Yuen Teen, an associate professor at the National University of Singapore. National investors were burned.

Then, in 2013, local bettors experienced another crash. A multi-sub transaction has destroyed $ 8 billion, in what the authorities have termed "Singapore's biggest market manipulation case in history." Three individuals illegally pumped the shares of three smaller companies, which had jumped at least 800% in nine months before plunging more and more three trading days. Once again, local investors have been the most affected. Gibson Dunn's Lee believes that the Catalan market, the stock market's venue for growing small businesses, has never been fully restored: "The market stopped suddenly."

According to Mak, retail investors currently account for around 30% of the market. The number of S chips has dropped considerably. Only the safe and stable companies that are the backbone of SGX remain. These are mainly preferred shares not for their growth prospects, but for their dividends, backed by the public investment company Temasek Holdings Pte. or an affluent family such as Kweks (financial services and real estate) or Wees (banks and real estate). "They use some type of investor," said Carmen Lee, head of investment research at Oversea-Chinese Banking Corp. (OCBC). "A lot of the money from private banks is now in Singapore, and they actually like the core values, which are somewhat boring and defensive," she says.

Three major banks – DBS, OCBC and United Overseas Bank Ltd. – represent more than 40% of the Straits Times (STI) benchmark. Real estate and telecommunications companies represent 23% more. The TSI also includes large foreign lists, such as Thai Beverage PCL and parts of the conglomerate Jardine Matheson, which was moved to Singapore three years before the British delivered Hong Kong to China in 1997.

But when it comes to technology companies, there's only one in STI: Venture Corp., a 34-year-old provider of electronics manufacturing services. "There is a real shortage of exciting new companies," said Kelvin Tay, regional director of investments at UBS Wealth Management in Singapore. "Nothing that I can think of."

Even the neighborhood around Shenton Way is changing. The Monetary Authority of Singapore is still present, but the Central Provident Fund, the National Pension Fund, has sold its building and relocated outside the Central Business District. DBS moved to the new Marina Bay area, joining the Asian headquarters of Facebook Inc. and LinkedIn Corp.

Ron Tan is president and CEO of Cityneon Holdings Ltd., which organizes exhibitions inspired by blockbusters such as The Avengers of Marvel Entertainment LLC and Jurassic World of NBCUniversal Media LLC. In 2018, although Cityneon shares listed on the SGX have been rising for three years earlier, Tan has decided to privatize it. He says he is unhappy with Cityneon's assessment. Growth stocks such as his own, which do not pay dividends, are poorly understood in Singapore, he said, as investors have become so accustomed to the more stable and dividend-producing companies that make up the world's largest and most profitable company. the market, as is the case in Zurich and elsewhere. Dubai.

It's a disconcerting mentality, he says, that applies to everyone involved. "It's the ecosystem: the stock market, fund managers, small investors, even the way I grew up," he says. "I'm Singaporean, so I'm programming myself that way, so I can not blame others here when they're looking at my own business."

Beyond the concerns of low valuations and restricted trading, a closer look reveals that some of the factors often cited as drivers of Singapore's economic success are the very ones that hold back the stock market.

First, there is the education system. Singapore has gained international recognition for training high performance students in mathematics and science, but with a focus on rule and rote learning. According to UBS's Tay, this is detrimental to creativity and leads to a lack of people creating companies that could potentially be listed on the stock market. "We wonder why we are not creating enough entrepreneurs and creative people," he says. "It's not that we do not have them. It's just that the system does not allow it. If you have to spend so much time getting smart for the exam, you have very little time to be creative. "

Home ownership – revered in Singapore – is another drag on the stock market. Former Prime Minister Lee explained that if Singaporeans owned their own property, they would invest more in the country and its economy, and put in place a policy to encourage that. Today, Singapore has one of the highest homeownership rates in the world, about 90%. Its inhabitants invest $ 949 billion in real estate, accounting for 44% of household assets. This is the "traditional way," says Jaime Pang, a 31-year-old lawyer. "You get a job, you get married, you put all your money in a house and there is not much left to invest in the stock market."

As a result, according to government statistics, stocks and securities represent only 9.6% of household assets. This compares to 48% in the United States. And Singaporeans investing in equities are turning more and more to options beyond the city, a diversification facilitated notably by exchange-traded funds. "Local investors are savvy and have more international options," says Ngoh of CGS-CIMB.

SGX has taken steps to stop the market decline. In 2018, he introduced dual class shares that offer some business owners higher voting rights. He has formed co-registration partnerships with Nasdaq Inc. and the Tel Aviv Stock Exchange. It has also expanded its in-house research team dedicated to highlighting small and mid-cap stocks, while the government is launching a $ 75 million Singapore grant to help companies become public. But the slide continues.

In the end, says Chua Hak Bin, senior economist at Maybank's Kim Eng Research Pte., Singapore "will only be a very specialized market". And maybe that's enough. Chua cites the strengths of SGX: a well-established market for REITs; including high valuations for medical services companies; and a good experience in the list of consumer stocks. SGX Chew says the stock market has been successful in helping companies raise money beyond their initial offerings, and said Singapore remains the market of choice for companies looking to expand across the board. region and to call on international investors. About half of the companies listed on SGX are foreign and the institutional currency trusts the Singaporean market, he said.

Like many of his peers, SGX has diversified beyond derivatives, says Michael Wu, Senior Equity Analyst at Morningstar Inc. in Hong Kong. According to its calculations, SGX earned 40% of its income from futures and options from September 30, 2017 to June 30, 2018, compared with only 26% of the shares.

Is it important if the Singapore stock market contracts?

The economy is thriving as Singapore prepares its third executive transition in 53 years. Finance Minister Heng Swee Keat is expected to succeed Lee Hsien Loong, the current prime minister, the son of Prime Minister Lee Kuan Yew, by 2022. The World Bank ranked the country second among 190 countries for ease of doing business in a 2018 report. Its per capita gross domestic product, based on purchasing power parity, ranks third Global: $ 98,260 from 2018, according to the International Monetary Fund. GDP, which is based on the manufacturing, trade, finance and business services sectors, has grown steadily – albeit at a moderate pace – since the global financial crisis. In a report published by Deloitte last year, the country was already ranked first among the most competitive wealth management centers in Asia, ahead of Hong Kong and only in front of Switzerland.

The government has invested billions of dollars in stimulating industries such as health care and biomedical sciences, and in creating an attractive environment for new technology companies. It is also pursuing its "smart nation" project, which manages its roads and industries, as well as everything else, on state-of-the-art technology. Some of these bets have already paid off. Since the early 2000s, Singapore has doubled the number of jobs in the biopharmaceutical industry, growing to more than 6,000, as a result of the establishment of local bases by GlaxoSmithKline, Merck, Roche Holding and D & C. Other companies.

None of this is particularly dependent on the health of the stock market. A limited number of companies are limiting investors' choices even as the fund management sector continues to grow, and Justin Tang, head of research at Asia at United First Partners, says that having a market Sleeping fellow does not have the effect of tarnishing Singapore's reputation as a financial center. Chua Maybank Kim Eng said that overall, the stock market is not as important as before. "A dynamic financial market is an advantage or an added advantage for the economy," he said. "It's not the only thing."

Indeed, the radiation trend could be a good sign, says Tamara Henderson, who covers Southeast Asia, Australia and New Zealand for Bloomberg Economics in Singapore. This creates a situation in which unlisted companies, freed from the constraints of quarterly reporting, are better able to focus on long-term growth, thus stabilizing the economy. "It's probably a sign of wealth," she says.

And in Singapore, wealth really matters: it's one of the cornerstones of the economy. With regard to Thom of Aberdeen, the stock market has little influence on the "tremendous growth" of the wealth management sector in Singapore or on the dynamism of the financial sector in general. What is more important, he says, is the perception that the country is a safe place to park money, with access to good advice and good fund managers. And a prosperous stock market? "A good-to-have rather than a need-to-have."

Yap covers the shares in Singapore. Redmond is a market publisher in Singapore. With Andrea Tan, Joyce Koh, Chanyaporn Chanjaroen, Jeffrey Hernandez and Justina Lee

To contact the authors of this story: Livia Yap in Singapore at lyap14@bloomberg.net Tom Redmond in Singapore at tredmond3@bloomberg.net

To contact the editor responsible for this story: Stryker McGuire at smcguire12@bloomberg.net

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