Different value propositions
In recent months, the traditional competition between SGX and HKEX, underpinned by Singapore-Hong Kong rivalry, has again come to the fore.
Both Singapore and Hong Kong had raced against each other to dish out digital bank licences to several companies. Geopolitical tensions between Hong Kong residents and the Chinese government have seen the transfer of wealth of high-net-worth individuals to Singapore, according to media reports, although the Monetary Authority of Singapore took pains to explain that the increases in fund inflows came from various sources.
More recently, SGX did not renew its licence agreement with MSCI for some of its derivatives contracts. This was replaced by HKEX, which signed an agreement with MSCI and announced that it will offer 37 new derivatives products.
Chew downplays the rivalry, saying that both exchanges offer different value propositions. “I think it’s no secret that many of the large Chinese companies choose [to list in] Hong Kong, where the interests of the mainland are — political or otherwise,” he says.
Singapore, on the other hand, is Pan-Asia, says Chew. He notes that companies listed here are not only from China, but also from Malaysia, Indonesia, Thailand and other countries — in addition to local ones. Companies that want to expand beyond Greater China may find a listing here preferable. “We serve different niches. Because of the relative differences in the markets, we can support issuers who look for different things,” he says.
PwC Singapore’s Capital Markets Leader Tham Tuck Seng agrees. “We must accept that SGX is a niche exchange which has its strength in selected sectors like real estate and healthcare and these sectors traditionally command relatively attractive valuations here. With Singapore’s stable political environment and transparent regulatory regime, companies may also be enticed to list here and use Singapore as a platform for business expansion into Southeast Asia,” he says.
Critics have also accused that many newly listed companies have not been afforded the valuations they deserve. However, an IPO is “a combination of art and science” and hinges on several factors, according to Mah How Soon, managing director at RHT Capital.
“Issuers will naturally explore their home exchange first where they are more familiar with in terms of regulations and the surrounding ecosystem, as well as where their main business presence is,” says Mah.
“The market P/E represents the weighted valuation of the component stocks that make up the indices, and may not be that relevant in determining the pricing of an IPO especially for SMEs, which is to a larger extent affected by the sector P/E, and the reception and performance of recent IPOs,” he adds.
Max Loh, EY Asean IPO leader and managing partner for Singapore and Brunei, says businesses need to recognise that different stock exchanges offer varying value propositions to IPO aspirants. Although pricing is a “significant metric” which attracts a company to list on a stock exchange, liquidity, sector attractiveness and investor propensity are factors to be considered.
The way he sees it, stock exchanges bear similarities to “membership clubs”. Like club members, companies help themselves to facilities and benefits, pay fees and are subject to stipulated regulations on stock markets to ensure a level playing field.
“Singapore competes for future listings just like it does for attracting foreign investments, talent and research and development,” says Loh. “A holistic value-added proposition is what will be needed to attract listings for the Singapore market,” he adds.