This article first appeared in The Edge Financial Daily on February 12, 2018

KUALA LUMPUR: Ample liquidity, high valuation levels and a renewed appetite for cross-border listings are brightening the horizon for the regional initial public offering (IPO) market this year amid a pickup in global listings, according to Singapore Exchange Ltd (SGX) head of equities and fixed income Chew Sutat.

“Based on what our clients are telling us, questions have been raised as to how much longer the current [eight-year] US bull run is going to last,” Chew told The Edge Financial Daily in an interview conducted before last week’s global equity market correction.

In comparison, emerging markets have looked relatively attractive, thus attracting significant institutional fund inflows over the past two years.

“We expect the positive momentum to continue, with interest coming from different countries and over a broad range of sectors, including technology, real estate and consumer,” Chew added.

Last year, SGX saw S$4.6 billion (RM13.7 billion) raised from IPOs — the highest in the region for the second year running — and the exchange’s highest value raised in four years.

Chew conceded that SGX would not have seen its fundraising hit record highs in 2017 without net inflows from investors in the West and North Asia.

The gains were boosted by the attention of investors and of Chinese companies, as they set their sights on the US$5 trillion (RM19.8 trillion) that needs to be raised as infrastructure investment under China’s One Belt, One Road initiative. Some Chinese companies have successfully raised capital via Singapore for projects in Thailand, Indonesia and South Asia.

This has made real estate investment trusts (REITs) and the infrastructure sector attractive to investors, said Chew. Other sectors that continue to draw significant interest are consumer, healthcare and tech companies.

SGX’s tech sector, which is among one of its biggest sectors with a combined market capitalisation of almost S$80 billion, is expected to draw more “new-economy tech companies”.

Chew noted that the exchange had received a number of enquiries from both local and foreign companies since the announcement of its collaborative listing agreement with Nasdaq last October.

Although SGX saw flat growth in net profit for the second financial quarter ended Dec 31, 2017 (2QFY18) at S$88.4 million, its share price had surged 92 cents or 12.15% within a week to a two-year high of S$8.49 on Jan 23 as analysts remained bullish on the group’s prospects.

It had since pared gains to close at S$7.89 last Friday.

“There’s a lot of expectations placed on us,” Chew admitted, especially after more than S$500 billion were raised through its equity and fixed income markets last year.

Comparatively, stock exchange operations made up 50% of SGX’s revenue.

The exchange also saw 27 companies delisted last year, wiping out more than S$12 billion of market capitalisation, although this is not a trend that is out of step with the rest of the world, Chew noted.

“Privatisations, such as buyouts by private equity firms, are cyclical,” he said, adding that companies may make their way back to the stock market later the same way APAC Realty Ltd was relisted last year after having been privatised in 2012.

Staying attractive to regional players

To SGX, what is important as a listing platform is to continue supporting its listed companies and trying to attract both primary and secondary listings, Chew said.

The exchange continues to welcome companies with a regional footprint to list in Singapore as they can benefit from easy access to international fund managers, who are interested in emerging-market assets but may not have the mandate to enter individual countries.

Take SGX’s first listing of the year — Myanmar-based tourism company Memories Group Ltd as an example. It joins two other Myanmar companies, 42 Malaysian companies and a large number of Indonesian companies, among others, Chew said.

Chew also pointed out that Malaysian companies such as Wilmar International Ltd and Top Glove Corp Bhd have benefited from listings in the country, noting that Wilmar had grown from a debut market capitalisation of S$100 million 10 years ago to S$18.98 billion last Friday.

More recently, Top Glove’s secondary listing on SGX had seen its share price double in a year and a half to S$3.10 last Friday from its listing price of S$1.60. Chew contended that this has helped the rubber glove maker raised sufficient exposure and funding for its acquisition of Aspion Sdn Bhd from Singapore-based Adventa Capital Pte Ltd. It has also been able to enjoy additional coverage from foreign brokerages.

Does this mean the Malaysian capital market does not have the volume or liquidity needed to serve its businesses’ capital needs?

Chew compared the size of the two markets, pointing out that SGX remains three times bigger than Malaysia’s at S$1.1 trillion in terms of market cap versus Bursa’s RM1.2 trillion. It is worth noting that the ringgit has depreciated by 18% to close at 2.9595 against the Singapore dollar over the past five years.

Nevertheless, he is of the view that Bursa remains a strong capital-raising avenue for domestic businesses, adding that “every market has its own strengths” and that SGX “can’t be all things to all people”.

He also noted that Malaysia’s specific economic policies and needs may vary from Singapore’s, resulting in different capital regulations.

An offshore market to support onshore activity

In response to views that the problem of Singapore’s market is insufficient liquidity to ensure success for dual-class shares, Chew deemed them as overplayed. “We are the 20th largest market for international funds from the US,” he said, adding that liquidity will always be present.

In comparison with Hong Kong, Singapore commands a similar amount of total US holdings for equity and higher for debt.

“Our market is more internationalised than Hong Kong,” Chew said, noting that less than 5% of total market cap in Hong Kong comprises international businesses as the market caters mainly to Chinese firms. In comparison, more than half of SGX’s total market cap comprises foreign companies.

Also, the higher percentage of institutional funds investing in the market makes Singapore a more stable platform for secondary listings versus retail-driven markets such as Thailand and Taiwan.

About 60% of daily trades on SGX are made by institutional investors, while another 20% are done by retail investors, and the rest by market makers and liquidity providers, Chew said.

While the exchange has faced criticism for offering futures for the ringgit and India’s Nifty 50, Chew defended SGX, saying that the offshore futures market is complementary to onshore trading activity.

Last year, Bank Negara Malaysia criticised SGX for continuing to allow the trade of ringgit futures as it sought to clamp down on offshore trades of the ringgit to stem its depreciation.

Meanwhile, India’s leaders have claimed that the offering of futures for its Nifty 50 stocks would suck liquidity out of Indian equity markets.