Dear readers, when the news of the formation of the Equities Review Group, which was tasked with rejuvenating and revitalizing Singapore’s lacklustre stock market, broke last year, the investing community was filled with excitement and optimism.
It marked a significant step towards invigorating a market that has often been perceived as conservative and dominated by a few key players. The collective enthusiasm was fueled by the hope that this initiative would introduce fresh ideas, innovative strategies, and a more dynamic approach to Singapore’s equity landscape. Many suggestions and ideas emerged from the investing fraternity, reflecting their keen interest in seeing the market evolve and adapt to global trends.
One idea that particularly resonated with me—and continues to stay etched in my mind—is the concept of establishing a secondary index for Singapore’s stock markets.
Currently, the Singapore market is predominantly represented and associated with the Straits Times Index (STI). The STI has long been regarded as the benchmark index, comprising the largest and most traded stocks on the Singapore Exchange (SGX). It is often viewed as a reflection of the overall health and performance of Singapore’s equity markets. However, the STI’s composition is heavily weighted towards three major local banks—DBS, OCBC, and UOB— which together constitute a significant portion of the index. These banking giants have historically driven the index’s movements and have been the primary focus for investors.
This heavy concentration in the banking sector raises an important question: does the STI truly reflect the broader landscape of Singapore’s stock market? Over the years, the index’s heavy reliance on a few dominant financial institutions has led to concerns about its representativeness. Additionally, with the recent announcement that the STI will be welcoming its 8th Reit/Trust into its fold later this month—specifically Keppel DC—the composition of the index is poised to shift further.
Once Keppel DC is included, approximately a quarter of the STI will be made up of Singapore Reits (Real Estate Investment Trusts) and Trusts. This development underscores the increasing importance of the Reit sector within Singapore’s equity ecosystem and prompts a re-evaluation of whether the current index truly captures the diversity and vibrancy of the local market.
Given this context, the idea of creating a secondary index becomes even more compelling. Such an index could serve as a complementary benchmark, focusing on a broader range of companies beyond the traditional heavyweights. It could be curated to include promising local firms with strong growth prospects, innovative business models, and sound fundamentals. This secondary index might also feature secondary listings of well-known overseas companies that have established a presence in Singapore, providing investors with exposure to regional and global opportunities.
The potential benefits of a secondary index are manifold. Firstly, it would offer a more diversified and representative snapshot of Singapore’s equity market, capturing sectors and companies that are currently underrepresented in the STI. This would enable investors to better understand the overall health of the local economy, especially as new sectors emerge and evolve. Secondly, a secondary index could attract a different segment of investors—those who are looking for growth opportunities rather than just defensive, dividend-yielding stocks. This diversification of investor interest could bring increased liquidity, trading volume, and overall vibrancy to the local market.
Furthermore, a secondary index could boost Singapore’s reputation as a global financial hub. By showcasing a broader array of companies—local champions, innovative startups, and reputable foreign firms—Singapore can position itself as a more dynamic and diversified investment destination. This would appeal not only to domestic investors but also to international institutional and retail investors seeking exposure to a well-rounded, resilient market.
Creating such an index would require careful curation and transparent criteria. It would need to identify companies with compelling growth stories, solid financials, and sustainable business practices. Additionally, inclusion criteria could be set to ensure the index remains balanced and reflective of the market’s diversity. The index could be reviewed periodically to adapt to changing market conditions and emerging sectors, ensuring it remains relevant and useful for investors.
In conclusion, the idea of establishing a secondary index for Singapore’s stock markets is both timely and relevant. It aligns with the broader goal of the Equities Review Group to invigorate and diversify Singapore’s equity landscape. Such an index would not only provide a more comprehensive view of the market’s health but also attract a wider array of investors seeking growth and innovation. As Singapore continues to evolve as a financial hub, embracing this idea could prove instrumental in enhancing market depth, liquidity, and international appeal. It’s a step towards building a more resilient, inclusive, and vibrant equity ecosystem that truly reflects the dynamism of Singapore’s economy.
Let us hope that this vision becomes a reality, and that Singapore’s stock market continues to grow and thrive in the years ahead.