Singapore’s stock market, long regarded as a cornerstone of the city-state’s financial prowess, faces a persistent conundrum: a majority of local retail investors continue to avoid most Singapore Exchange (SGX)-listed stocks. Despite efforts to revitalize the market, key structural challenges—low liquidity, subpar listings, and changing demographics—have made it an uphill battle to draw retail participation.
The Big Picture: A Stagnant Market
While Singapore has thrived as a global financial hub, ranking among the top centers for commodities trading and foreign exchange, its stock market has struggled to keep pace. The SGX ranks 23rd globally in market capitalization, according to the World Federation of Exchanges, far behind other financial powerhouses. Initial public offerings (IPOs) have dwindled to a trickle, with just four listings in 2024—all on the secondary Catalist platform.
In contrast, markets like the U.S. have delivered robust, long-term returns, enticing investors with superior growth prospects. A hypothetical $1,000 investment in the S&P 500 in 1990 would have grown to over $32,000 by the end of 2024, representing an annualized return exceeding 10%. Singapore’s stock market, on the other hand, has often languished, delivering inconsistent returns and failing to excite local investors.
Why Retail Investors Shun SGX
Retail investors’ skepticism toward the SGX is driven by several interconnected factors:
- Low Liquidity: Many SGX-listed stocks suffer from thin trading volumes, leading to poor price discovery and difficulty in executing trades without significant price impact. This lack of liquidity disincentivizes both retail and institutional investors from engaging with the market.
- Poor Quality of Listings: Beyond a handful of blue-chip stocks—primarily banks and real estate investment trusts (REITs)—the SGX is perceived to lack diversity and quality. Many companies listed on the exchange fail to inspire confidence due to their limited growth prospects, opaque governance, or niche market focus.
- Demographics: Singapore’s ageing population exacerbates the issue. Older investors typically shift toward conservative asset allocations, favoring bonds and fixed income over equities. This trend reduces the pool of active equity investors over time.
- Need for Diversification: With significant exposure to the Singapore economy through property, CPF savings, and career earnings, local investors often prefer to diversify their liquid portfolios internationally. Investments in U.S., European, or broader Asian equities offer not only higher growth potential but also reduced concentration risk.
Revitalization Efforts Underway
Recognizing these challenges, the Monetary Authority of Singapore (MAS) has convened a task force to address key market issues, including liquidity and IPO attraction. The Securities Investors Association (Singapore) has also sought public feedback to identify pain points and potential solutions.
Proposed measures include:
- Market-Making Incentives: Encouraging institutional players to enhance liquidity by acting as market makers for under-traded stocks.
- Attracting High-Quality Listings: Streamlining the IPO process and offering incentives to attract large, reputable firms to list on the SGX.
- Innovative Products: Expanding offerings to include more structured products, ETFs, and derivatives that align with retail investors’ preferences for diversified and risk-adjusted returns.
Bank Stocks and REITs: The Safe Havens
Despite widespread investor apathy, some segments of the SGX remain attractive. Stable dividend-paying stocks, particularly in the banking and REIT sectors, continue to draw retail interest. These investments provide reliable income streams, catering to Singapore’s risk-averse, income-focused investor base.
A Sobering Outlook
The SGX’s challenges are not insurmountable, but they require sustained effort and innovative thinking. Singapore’s retail investors are behaving rationally in seeking higher returns and diversification abroad. Unless the local market can address its liquidity and quality gaps, the trend is unlikely to reverse.
For now, the SGX must work harder to prove that it can be more than just a niche market, appealing not only to institutional players but also to the everyday investor seeking growth and stability in their portfolios.
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