Let me begin by echoing the sentiment set forth by my honorable friend, Louis Chua, on how the work of the MAS and Equities Market Review Group are a positive step forward. Yet as he shared, these efforts appear to be targeted toward improving market efficiency and functioning, but fall short of the sort of structural reforms necessary to foster sustained corporate value creation.
Mr Chua suggested two pillars: enhance shareholder value via mandatory disclosures, and strengthen corporate governance with more robust enforcement, both of which stress reforms to market microstructure. In closing, I will take a step back and offer a third pillar, premised on macrofinancial reform: enrich the capital-raising lifecycle.
Despite being a financial hub, Singapore’s financial development lags behind
Let me first expand on what Louis shared about the current challenges of our stock market, but from a more macro and comparative perspective.
Our market for publicly-listed stocks currently lags those of many other countries, even compared to those with far less-developed financial sectors. Singapore’s stock market capitalization, as a share of national output, stood at 117 percent last year, between India and Malaysia. This is despite India’s overall financial development being more than two times lower than Singapore’s, and Kuala Lumpur being miles away from us a global financial center.
Perhaps more worryingly, this share has steadily eroded over the past two decades. Capitalization almost reached 300 percent on the eve of the global financial crisis, but this has steadily eroded by more than three-fifths. This trend is heading in precisely the wrong direction, if our goal is to fortify our stock market.
Nor should we rest easy because of the Singapore Exchange’s (SGX) recent performance. The SGX certainly did well last year, posting returns of close to 30 percent. But so did the stock exchanges of Pakistan, Sri Lanka, and Vietnam, and few would claim that these markets are the benchmarks that we should aspire to. Make no mistake: returns are distinct from liquidity, and the primary role of any stock market is to raise capital to fund investment, with returns being secondary.
Our private equity markets fare little better. One estimate places our venture capital (VC) market at around $1.2 billion in 2024, a small fraction of the more than $4 billion raised by comparable early-stage rounds from either the Bay Area or United Kingdom. Even when scaled to per capita terms, we fall short of Israel. Hence, while we are undeniably successful within Asia, we remain a distance behind global leaders.
Indeed, our problem appears more general. Singapore’s financial market depth is only four-fifths that of South Korea—an economy whose financial markets are typically regarded as less sophisticated than ours—and is only a little more than half that of Hong Kong, our major financial center competitor. While we have made headway in certain segments—foreign exchange and real estate in particular—our financial markets still fall short in one of their key functions: to raise funds for doing business.
Enhancing the capital raising lifecycle
Improving the lifecycle for capital raising requires us to look at the full stack for corporate finance: from angel through different stages of venture investments by private equity, to initial public offerings on a secondary board, followed by possible graduation to the main board.
Our angel market is mature, but shallow. There are close to two dozen angel and seed investment networks here, of which the most prominent—the Singapore Angel Network (AGAN) and the Business Angel Network of Southeast Asia (BANSEA)—are well-established. The funding environment is liquid, with hundreds of deals annually; moreover, four in five investors report optimism about the ecosystem.
The government has also extended significant support to the startup scene. There is both grant money as well as tax breaks for angel investments, and co-investment opportunities. Officially-sanctioned hubs abound, such as Block71 and Stage One, along with other incubators and accelerators set in the one-north complex. The National Research Foundation has also been active in supporting innovations in deep technology, including the launch of the $50 million Graduate Innovation Research Programme (GRIP), to support locally-based entrepreneurs.
Deepening liquidity in the pre-IPO stage
Given this backdrop, this stage of the venture cycle appears well-positioned. I therefore second the recent decision by Temasek to back away from direct exposures to early-stage investing, and instead focus on later-stage—meaning Series B and later—funding rounds.
This is logical, given Temasek’s relative size, which makes deploying relatively small sums of capital challenging and inefficient. But it is also vital that the institution deepen domestic liquidity for later VC stages, which leads me to favor an even stronger focus on pre-initial public offering (IPO) stage, with a clearer mandate to target locally-based companies. This will also help catalyze the market for private-investor exit, while simultaneously easing the transition of firms to public investment on the secondary board.
There are already some government-directed efforts on this front. The $1.5 billion Anchor Fund@65 and $500 million Growth IPO Fund have been in place since 2022, to support high-growth firms with public listings. However, such efforts are relatively small and, perhaps more importantly, incomplete; rather than one-offs, what is needed to generate market activity is continuous reinvestment. It would be better to simply enfold these entirely into Temasek’s overall portfolio, while channeling the fund’s mandate more toward funding domestic opportunities.
Enhancing incentives for local listing
The goal is to usher companies toward an eventual listing, and to choose SGX as their outlet. In my view, the fate of our main board will ultimately be dependent on how vibrant our secondary board is.
Alas, activity on Catalist has been disappointing. Last year, there were only 6 IPOs, and it was 4 the year prior. ASEAN bourses have all found greater success in their public offerings, with Indonesia and Malaysia dominating the region in terms of listing and fundraising capacity.
We must shore up our local listings on Catalist, to increase its attractiveness as an exit destination for our otherwise robust earlier-stage venture ecosystem. The problem is one of chicken-and-egg: presently low liquidity has made VCs wary of listing on this board, while the small number of new listings in turn limits trading and turnover, thereby becoming a self-fulfilling prophecy.
Breaking this negative equilibrium that the SGX has found itself in will require—pardon the pun—a catalyst, in the form of a temporary stimulus to IPO activity. The government understands this. It has, since 2019, sought to underwrite listing expenses with the Grant for Equity Market Singapore (GEMS)” Scheme. But GEMS is presently biased in favor of mainboard listings, rather than Catalist, and it is unclear how much takeup there has been for the scheme.
The monetary authority has also tabled proposals for streamlining primary and secondary listings. This is a positive step, which I support. We may also consider piling on fiscal incentives—such granting firms that choose to list continued recognition as SMEs for tax purposes over an interim period—as an additional inducement.
I should stress that easing listing requirements does not imply weaker regulation in the long run, contrary to the points made by my honorable friend about transparent disclosures and strengthened governance. Rather, I am arguing for initial forbearance, to strengthen incentives to list here in the first place.
Promoting more bottom-up stock ownership
Enhancing stock market liquidity should not be limited to public-sector initiatives alone.
We should enlist our ecosystem of family offices more into this effort. The favorable tax treatment for family offices, under Sections 13O and 13U of the Income Tax Act, only applies when a minimum allocation is made to qualifying investments (QIs). This may be further refined to also require a minimum allocation to onshore allocations, specifically.
We can also do more with other private-sector institutional accounts. There are excellent examples of stakeholder capitalism around the world, including Germany, Japan, and Scandinavia. Setting aside the advantages and disadvantages of such arrangements, it is difficult to deny that channeling more buy-side exposure toward would likely improve market depth and foster greater vibrancy. To encourage takeup, we could grant tax-free status for employee stock ownerships.
We could even consider making further to retail investors, to leverage the participation of average households. One in two Singaporeans already own stocks, and half of the local exchange is already held by individuals. The CPF Investment Scheme already allows an opt-in for Singapore-listed shares on the SGX. It will be a small leap to further promote responsible retail ownership of a local market index, ideally through revisions to the Lifetime Retirement Investment Scheme (LRIS), or through additional educational incentives, either associated with the LRIS, or independently. Sweden has demonstrated that such bottom-up participation can underpin stock market success. On the supply side, we can develop a deeper pool of front-office talent necessary to ensure a vibrant financial ecosystem.
Ultimately, a successful SGX will require that we pay attention to the full capital raising cycle, from startup through listing, on both the buy and sell side. Only then will we have a domestic stock market commensurate with our status as a global financial center.
