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Churn is good for SGX, of course, but not necessarily so for retail investors! Tongue

(As usual, the word "investors" and "speculators" is again used inter-changeably).

The Straits Times
Dec 30, 2011
Drumming up retail buzz in SGX

Whetting investors' appetites proving to be a significant challenge

By Anita Gabriel

SINGAPORE Exchange (SGX) chief executive Magnus Bocker is on a tireless crusade to woo retail investors.

His latest suggestion is to revamp the decades-old Central Depository (CDP) system to give retail shareholders the option of letting their brokers see what shares they hold. The CDP holds the shares of about 1.4 million investors.

The idea is to put brokers in a better position to advise clients on tweaking their portfolios and thereby add some sparkle to retail trading.

The proposal is aimed at a deficit that has long niggled the local bourse - the lack of any real 'retail buzz'.

That's a tough nut to crack, especially at present, considering the risk-averse climate which has engulfed much of the world as a result of the financial turmoil in Europe and the United States.

A healthy dose of retail buzz does wonders for a stock market. It raises liquidity - the amount of funds swishing about in the bourse. This, in turn, draws in more investors and perpetuates a robust and vibrant trading cycle.

This is evident in Hong Kong, where about 35 per cent of the adult population dabbles in the stock market and in the United States, where 50 per cent of households own stocks.

Based on comparative data provided by the World Federation of Exchanges (WFE), as of 2009, only 12 per cent of Singapore's population owned shares either directly or through mutual funds.

Both the US and Hong Kong stock markets enjoy relatively high share turnover velocity - a measure of a market's liquidity based on the ratio between trading volume and market value. In stark contrast, SGX's share turnover velocity underscores the gap between the local market and the other developed markets.

The Singapore market's turnover velocity for the year to last month was 38 per cent, well below Hong Kong's 58 per cent.

But the figure was even further shy of the turnover velocity of the Nasdaq and NYSE Euronext in the US and the Korean, Australian, Tokyo, China and Taiwan stock exchanges, which far exceed 100 per cent, based on WFE data.

This is 'far from satisfactory for a developed market' such as SGX, Mr Bocker has lamented.

'A bourse loses its charm if it lacks liquidity,' said Tokyo Stock Exchange president Atsushi Saito. In fact, the planned merger of the Tokyo Stock Exchange and Osaka Securities Exchange - creating the world's third-largest stock exchange - is predicated on the all-encompassing liquidity factor, indeed, a powerful gauge of a market's appeal.

In a recent interview with The Straits Times, Mr Bocker revealed that of the 1.4 million CDP accounts, only 200,000 conduct one transaction per quarter and a mere 20,000 execute a trade a day. (When contacted, the SGX said it has no further information on retail investor participation in the local bourse.)

The local stock market boasts of having the highest composition of listed foreign companies - about 40 per cent of all listed companies, to be exact, in the region. In comparison, of Hong Kong's total 1,477 listed companies as at last month, only 1.6 per cent were foreign.

But as far as being a magnet for retail investors is concerned, there's much to be done.

Compared to Singapore, Hong Kong has a thriving and high level of retail investor participation.

Mr Bocker has frequently admitted that there's room to lift retail participation in the market here as well as boosting liquidity.

Another issue is size.

Hong Kong's Hang Seng Index has more than twice the market value of the Straits Times Index and has about eight times as much daily total share volume.

NUS Business School finance professor Joseph Cherian points out that Hong Kong derives much of its retail buzz from its proximity to mainland China.

Mr Bocker has boldly introduced a slew of measures centred on stirring up retail demand and raising liquidity since he took the top seat at the exchange two years ago.

He has tightened the minimum bid-ask spreads for selected counters, cut transaction costs for investors, extended trading hours by doing away with the lunch break, enabled trading of Singapore bonds and launched a new trading engine touted to be the world's fastest.

But none of these has whetted retail appetite in a significant way.

Courting the notoriously hard to entice retail investor, who has long tended to snub stocks in favour of a sexier option - real estate - is proving a significant challenge.

Securities Investors Association president David Gerald said the stock market does not have sufficient pulling power.

'We do not have sufficient number of big stocks to provide sufficient liquidity. We also do not have that many products for investors to trade. SGX will have to embark on more marketing efforts to boost investor interest,' he says.

It is also hoped that the introduction of high frequency traders in Singapore will drive liquidity in the market - as has been done fruitfully in other markets.

Thanks to its proximity and access to mainland China, Hong Kong draws in the mega businesses such as the Chinese banks, telcos, petrochemical companies which, based on their scale and weight in the regional indices, enjoy a significant share of regional attention.

Therein lies the urgency of linking the SGX with other Asean markets through a common trading platform.

For starters, Singapore, Thailand and Malaysia will be hooked up via electronic trading links to allow for cross-border trades sometime next year. Eventually, it is hoped, other Asean markets will join.

This would benefit SGX tremendously, given its potential as a cross-border trading hub for large regional investors and traders.

If Mr Bocker stays on for another term, he may get the chance to see his plans play out (his initial three-year term ends on Dec 1 next year).

But if he doesn't and very little changes in the next year, his tenure may face the risk of being unfairly defined by one major blip - SGX's failed A$8.4 billion (S$11 billion) takeover attempt of its Australian counterpart ASX.
I really hope SGX comes up with a "Good till Cancelled" order option.