Beyond the retail resurgence

While Kumar is aware of the risks of invest­ing in the stock market, he reckons that the market dip caused by the novel coronavirus pandemic has turned up attractive opportuni­ties. Even if the stock market were to dip fur­ther, he notes that time is on his side. Sooner or later, the stock market will rebound — as it has always done historically.

“I believe we have to take risks at the right time. My parents are more likely to stick with safe choices, but being young, I believe this was the right time,” he tells The Edge Singapore.

Kumar is part of a wave of new retail inves­tors who have helped to reverse the steady de­cline of participants in the Singapore stock mar­ket. This is evidenced by a slew of new share trading accounts opened early this year, accord­ing to checks by The Edge Singapore in May.

For one, CGS-CIMB Singapore registered a 32% surge in the brokerage’s account openings for 1Q2020 from the previous quarter. New in­vestors came aboard because of low share pric­es and attractive returns, according to Raymond Chin, its head of retail. Phillip Securities, one of the more established homegrown brokerag­es, saw a threefold surge in new applications for the period of January to April, compared to the corresponding period last year. OCBC Secu­rities, on the other hand, recorded a 42% y-o-y increase in requests for account openings be­tween January and March.

This surge in share trading account openings has slowed the process. DBS Vickers notes that on a normal day, the process would take any­where between five and seven days. But that had stretched to up to four weeks, as the bro­kerage grappled with a high volume of requests.

Indeed, according to the Singapore Exchange, new CDP (Central Depository) accounts have more than trebled in March and accelerated five­fold in April compared to both months a year ago. In total, the number of new CDP accounts opened in both months reached over 10,000.

Unsurprisingly, trading statistics from the SGX reflected highs that were not seen in re­cent times. The securities market turnover vol­ume peaked at 39.8 billion shares in March, the highest since October 2018. The securities mar­ket turnover value, too, peaked at $48.25 bil­lion the same month, the highest since 2017. The securities daily average value (SDAV) and turnover velocity also peaked at $2.19 billion and 92%, respectively.

Chew Sutat, SGX’s head of global sales and origination, says the figures point to the un­derlying strength of the Singapore stock mar­ket. “If you compare y-o-y or q-o-q, the num­bers are very strong. So, it is demonstrable of what I would call latent muscle in the market, which is what people don’t see,” he tells The Edge Singapore in a recent interview.

‘Smart’ retail

To be sure, more active trading by retail inves­tors is a trend seen not just in Singapore but also in markets like the US. “In the past, retail investors were always buying high, selling low, and always late in the game,” says DBS chief investment officer Hou Wey Fook, referring to US retail investors. “Now, they’ve climbed the learning curve. They are what I call ‘net posi­tive’ for the overall market, and a new force to contend with. What we see in the US, we also see in Singapore.”

There are several reasons for the increased participation from retail investors, Evy Wee, head of financial planning and personal invest­ing at DBS, told The Edge Singapore in May.

“We see both new and younger investors wanting to make investments when stock prices fell earlier in March, whereas existing investors want to rebalance their portfolios to reflect cur­rent market sentiment,” says Wee. “More cus­tomers have also come forward to set up regular investing plans, while some existing customers have gone on to increase their monthly invest­ment amounts.”

Chew says the market volatility has prompted retail investors to take advantage of opportuni­ties unlike before. After Covid-19 was declared a pandemic by the World Health Organization on March 11, financial markets plunged — in­cluding Singapore’s. The Straits Times Index plummeted by about 20% to a 11-year low of 2,233.48 points on March 23.

Given that valuations of many stocks had dipped to levels seen during the Global Finan­cial Crisis (GFC) in 2008, some investors may have accumulated more shares, he says. Other investors may have exploited the wider trad­ing range for speculation purposes, he adds.

Interestingly, retail investors were net buyers in 1Q. In contrast, institutional investors were net sellers. Statistics from SGX showed that re­tail investors collectively bought some $2.96 billion worth of shares net, while institution­al investors collectively sold some $1.5 billion worth of shares.

Gary Dugan, CEO at The Global CIO Office, says institutional investors were fearful that the accommodative actions taken by central banks around the world were insufficient to prop up their respective economies. Notably, the US Fed­eral Reserve had cut the Fed fund rates to near zero. However, institutional investors felt that stock markets could continue to slide and stay lower for longer, he says.

On the other hand, retail investors — be­ing “less sophisticated” and perhaps having a one-dimensional view of things — believed that the easing of monetary policy is going to work, he says. “Therefore, they were much more trusting of the policymakers to improve things in the economy over the medium term and [so] they came in and bought,” he tells The Edge Singapore.

Chew, however, begs to differ. He observes that this contrasting pattern between retail and institutional investors had occurred previous­ly on several occasions. Whenever the STI was climbing to a peak, retail investors sold all the way to the top, while institutional investors were net buying. On the flipside, whenever the STI was declining, retail investors were net buying to the bottom, while institutional investors were net selling. So, the presumption that retail in­vestors are not savvy, perhaps in aggregate, is not fair, he says. “In the Singapore context, they seem to be quite smart,” he quips.

Chew offers one possible reason for this. Un­like retail investors, institutional investors are con­strained by their mandate. If the markets tank, fund managers may have to withdraw their hold­ings from the market in line with their mandate. Retail investors, on the other hand, are nimbler. They could also have more scrutiny and sensi­tivity to market cycles given that some of them have ploughed in their retirement money.

For now, the STI has rebounded to reclaim some lost territory, though it is still down 18.3% year to date. Interestingly, retail investors are still net buyers, while institutional investors continue to be net sellers, for much of 2Q. Mar­ket statistics from SGX reveal that retail inves­tors collectively bought $4.01 billion worth of shares, while institutional investors sold $3.75 billion worth of shares.

However, the resurgence in market partic­ipation appears to be wearing off. Market sta­tistics from SGX show that the securities mar­ket turnover volume and value in April have fallen to 31.6 billion shares and $29.63 billion, respectively. Both figures have declined further in May to 29.5 billion shares and $27.15 bil­lion, respectively. The SDAV and turnover ve­locity have also fallen to $1.5 billion and 60%, respectively.

So, is the re-energised Singapore stock mar­ket — driven by retail investors — a short-lived phenomenon?

Chew says it is anybody’s guess whether the strong retail investor participation will pick up again and be sustained. “I don’t have a crystal ball,” he says. Volatility, which investors are taking advantage of and has led to the surge in trading, is not something SGX can control, he says. It is all up to the market.

Chew sees other positive aspects of the local stock market though. For one, local market mak­ers and liquidity providers have continued to grow in proportion to the market. This has helped to provide liquidity to market participants when the CBOE Volatility Index (VIX) hit 90 points. There will be more “initiatives” in the coming months in that regard, he says. That could support the trading volume and value of the market and per­haps, sustain the trading interest.

Secondary fund-raising speeds up

Meanwhile, other challenges that have beset the Singapore stock market continue to be present. For one, the persistent dearth of major IPOs has continued to perpetuate the percep­tion that the local stock market is still strug­gling to attract large companies to list here. This has been accentuated by an increasing number of companies delisting their shares from SGX. Worse still, the local stock market has been marred by a spate of corporate and accounting scandals.

In response, Chew touches on the role of the stock market, which primarily functions as a platform for companies to tap funding from investors. In return, investors can participate in the growth of these companies. The way he sees it, Chew says the local stock market has and is fulfilling its role — albeit via secondary fund-raisings.

According to SGX, the local stock market has so far this year raised US$7.2 billion ($10 bil­lion). Of this, US$6.7 billion was raised through secondary fund raisings, comprising rights is­sues and share placements. This has already surpassed the total value of secondary funds raised last year of US$5.4 billion and equalled the total value of secondary funds raised in 2017.

Of course, a large part of this is attributed to the $8.8 billion raised from a rights issue under­taken by SIA earlier this year. Still, over the last five years, Singapore’s secondary fund-raising market has accelerated, though at the expense of the languishing primary fund-raising market. SGX-listed companies raised four times more funds through rights issues and share place­ments than at IPO. This compares with the Hong Kong Exchanges and Clearing’s (HKEX) 1.9 times and London Stock Exchange’s 2.5 times.

For the rest of the year, more secondary funds could be raised if history is anything to go by. According to SGX statistics, secondary funds raised soared to US$15.2 billion in 2009 following the Global Financial Crisis (GFC). Al­ready, Sembcorp Marine has planned to under­take a $2.1 billion renounceable rights issue to strengthen its cash position and balance sheet. “The need to raise funds continues to be there. This could be for recapitalisation and oppor­tunities for growth for some of the successful companies here,” says Chew.

So, does this mean that SGX will focus more on secondary fund-raising compared to IPOs? Chew says the focus is about growing liquid­ity, regardless of whether it is primary or sec­ondary fund-raising. An example of that is the REITs sector. He notes SGX has attracted REITs both locally and overseas from diverse geogra­phies to raise primary and secondary funds here.

This has been so successful that the Singa­pore market has been labelled as “just a REIT market”, says Chew. “[But] what’s wrong with being [labelled] the REIT market globally, if we get that?” he says rhetorically.

Chew, nevertheless, agrees there is room to grow liquidity in other sectors too. This includes healthcare, consumer and technology. “The key for us is to work with the industry that includes the brokers and asset managers,” he says.

More REIT listings expected

Looking ahead, Chew is not worried about the IPO pipeline despite uncertainties and volatility brought by Covid-19. He points out that thus far this year, SGX has already welcomed the listing of six companies such as most recently South­ern Alliance Mining, as well as Hong Kong-based but New York-listed AMTD Internation­al, the first dual-class shares company that was secondary listed in April.

Other recently listed companies include Re­sources Global Development, Don Agro In­ternational and Memiontec Holdings. This is unlike the periods following previous crises like the SARS and the GFC which experienced a slow IPO market for 12 to 18 months, he says.

Market observers remain mixed though. Eng-Kwok Seat Moey, head of capital markets at DBS, says the stock market has reacted pos­itively coming out from the doldrums in March on the back of the global economy reopening. Issuance activity is expected to ramp up in the coming months as issuers seek to tap liquid­ity as investor sentiment improves, she says.

“We continue to see healthy enquiries and pipeline activity remains intact. International issuers continue to see Singapore as a strate­gic and attractive location to access the broader Asian liquidity,” she tells The Edge Singapore.

Tay Hwee Ling, disruptive events assurance leader at Deloitte Southeast Asia and Singapore, thinks otherwise. “We do not foresee the IPO market to rebound quickly in 3Q or 4Q,” she tells The Edge Singapore. “There is still a lot of uncertainty in the capital markets and it is hard to predict when or how fast the market will re­cover post Covid-19.”

So far, Thai Beverage appears to have put its $10-billion brewery spin-off on the shelf. In a May 29 filing, the company said that “any potential listing will be reviewed and evaluat­ed at an appropriate time when the global eco­nomic situation and outlook has improved”. On the contrary, another big multi-billion spin-off by Wilmar International of its China unit Yi­hai Kerry Arawana Holdings on the Shenzhen Stock Exchange, is going ahead.

Still, market observers agree that the Singa­pore stock market will continue to attract RE­ITs to list here. Already, UK-focused Elite Com­mercial REIT and United Hampshire US REIT were listed earlier this year. Eng-Kwok says she continues to see interest from foreign issuers in Asia and the West looking to list their assets in Singapore because of its established reputation as a global REIT hub.

“We expect to see more activity in the REITs space in the coming months as it is generally fa­voured as an asset class especially amid volatile markets and a low interest rate environment. This is evidenced by the continued outperformance by REITs as markets remain flushed with liquidity looking for quality and defensive plays,” she says.

Tay says she observes a spike in the num­ber of enquiries we received for potential REITs listing on SGX. These are mostly fund manag­ers based in the Asia Pacific region, she notes.

That aside, AMTD’s listing could pave the way for more companies to list here — wheth­er primary or secondary. This is because the company has an investment banking arm, says Chew. “We could see more of these secondary listings coming to Singapore,” he says.