Despite having a much stronger currency than Malaysia, last year the SGX facilitated a total fund raise of US$391mil (RM1.85bil) from new listings compared with Bursa Malaysia’s US$762mil. — AFP PHOTO / ROSLAN RAHMAN
OVER the past few months, a hot topic across the causeway has been their struggling stock market.
If you didn’t know it already, an anomaly has existed in Singapore for many years — while it remains one of the top global financial centres, its equity market is a totally different story. It is dogged by low trading volumes, low valuations and it is no wonder that it now has more delistings and new listings.
Despite having a much stronger currency than Malaysia, last year the Singapore Exchange (SGX) facilitated a total fund raise of US$391mil (RM1.85bil) from new listings compared with Bursa Malaysia’s US$762mil, going by Bloomberg data.
The Singapore market also trades at a price earnings (PE) multiple of only 12 times compared with Malaysia’s 15 times, Thailand’s 18.75 times and the US’ 24 times.
There are a number of reasons for Singapore’s situation. One interesting reason is that countries like Malaysia operate on the opposite side of the equation.
Singapore pension monies and other government funds do not flow into their own stock market. Those funds are largely mandated to be invested abroad. That means less money is being invested in the Singapore stock market.
Being a global investment hub, private banking is also very advanced in Singapore, giving its locals multiple products and opportunities to invest abroad.
The converse is true in Malaysia, where the bulk of government managed investment funds end up in our local stock market. The Malaysian government is asking even more of that money to be pumped back into our market, limiting these funds’ ability to invest abroad.
That may be the reason why some reckon that the Malaysian stock market is inflated to some extent.
As a result, companies trading on the Malaysian market do seem to be ascribed with better valuations than their peers across the causeway.
What if a company is listed on the SGX, but a big part of its operations are in Malaysia?
Examples include semiconductor player UMS Holdings Ltd and electronics manufacturer Aztech Global Ltd. Both trade at much lower PE multiples than their peers listed on Bursa Malaysia.
If you were the owner of such a company, it must surely cross your mind that perhaps your company could be worth much more if it were listed on Bursa Malaysia.
One could then take the drastic step of delisting from SGX and relisting in the Malaysian market. That though, is something that has not been done before. One reason is simply this: Would the owner risk transferring his asset from one which is denominated in the Singapore dollar to one which will now be valued in ringgit?
After all, we know that the opposite has been happening for umpteen years — Malaysian businessmen have been making a beeline to banks in Singapore to stash their monies there in what is deemed a more stable currency.
A Singapore-listed stock could also opt for dual listing in a market like Malaysia. This also has never been done before. One main reason is that Singapore stocks are already easily accessible to Malaysian-based investors. So why the need for a dual listing and additional costs and reporting requirements?
One seasoned investment banker says it may be too simplistic to say that stocks on the Singapore market trade at discounts to their peers on say, Bursa Malaysia.
“There are a multitude of reasons that go into the valuation of a stock. Oftentimes, there are specific reasons why a company has a lower or higher value. With the free flow of funds between different markets these days, it is a hard argument to make that valuations differ based solely on which stock market your stock is listed on,” he explains.
Another aspect of Singapore’s laggard stock market is the lack of new companies coming out of that market. As is well-known, Singapore’s business landscape is dominated by strong government-linked companies coupled with multinational companies who have made the island state their regional base. Entrepreneurs and their small businesses have been largely crowded out.
A local investment banker says while it may seem that Malaysia continues to churn out small businesses to get listed on the stock market, this is also in jeopardy due to funding issues. He points out that what is markedly absent in Malaysia is the availability of mezzanine financing as banks do not sufficiently lend to entrepreneurs and small businesses.
“In the good old days, we had a second tier of licensed lenders. Of course these finance companies almost caused a financial collapse and had to be rescued or merged, but their eradication from the market is having a profound negative impact on small business owners. More thought needs to go into how more big funding can be made available to boost our SME sector.”
While many banks in Malaysia do boast of their lending to SMEs, such funding is mainly towards larger companies, leaving out the smaller ones to remain underfunded and thus impeding their growth prospects.
That in turn could put a dampener on the landscape of new companies seeking IPOs on Bursa Malaysia.
This article first appeared in Star Biz7 weekly edition.
