Short-sellers have Singapore stocks in their sights as the market struggles to find its footing as a smaller exchange hit hard by the commodity rout.
SGX saw its total short selling surge from S$3.2 billion in December to S$5.6 billion in January, representing 25 per cent of total volume, the highest since data became available, Credit Suisse said in a note Tuesday. Short-selling refers to borrowing shares to sell in hopes of buying them back at a lower price later.
That comes as the exchange is also facing headwinds from a concentration of listings in hard-hit sectors, including commodities, oil services and shipping as well as a hit from China's economic slowdown. Out of a total 776 listings at the end of December, the SGX had 63 listings in the basic materials sector, 40 in oil and gas and 267 classified as industrials. That compares with 26 healthcare listings and 59 technology listings.
Among the stocks with the highest percentage of volume related to short-selling were agri-businesses Wilmar and Golden-Agri Resources and oil-rig-builders SembCorp Industries and Keppel Corp., Credit Suisse said.
That comes as the exchange is already facing difficulty competing, particularly due to its relatively small size.
The Singapore exchange's market capitalisation was at S$904.77 billion at the end of December, compared with Hong Kong's HKEx at HK$24.425 trillion (S$4.48 trillion) at the end of December.
At the same time, the daily average turnover has been shrinking, with December's S$774 million worth of average daily volume down 22 per cent from the year-earlier month.
The small size makes it tough for Singapore to attract institutional investors to its market.
"One of the challenges for the Singapore market is that sometimes the criticism there is that there are not (enough) companies to invest in," Daryl Liew, head of portfolio management at asset manager Reyl Singapore, said at an SGX-CNBC summit last week in Singapore.
"We tend to invest only in companies with a minimum $1 billion market cap. Obviously there are some that we can put in there, but there are certain limitations to what we can actually allocate money to," he said.
Another criticism comes from a perceived focus on stodgier industries, such as commodities and shipbuilding.
"Where the market is a little bit weak at the moment is in growth stories, credible structural growth stories that you can invest in over a three-to-five-year time frame," Conrad Werner, head of equity research for Singapore at Macquarie, said at the panel. "They are there, selectively, but as a block, for example, I would like to see the technology sector represented within the index, which we don't have."
SGX acknowledges that it's a tough climate for the city-state's stock market.
"Last year, was a pretty tough market for us overall as an IPO (initial public offering) market," noted Chew Sutat, head of equities and fixed income at SGX, at the panel. SGX's mainboard had 276 million Singapore dollars raised in IPOs and reverse takeovers in 2015. That compares with S$562 million worth in December 2014 alone. But Chew noted that the exchange still raised US$4 billion (S$5.72 billion) in secondary capital for existing listings.
The exchange isn't standing still and waiting for the environment to improve.
For one, Loh Boon Chye, SGX's CEO, announced at the panel that the exchange is considering allowing listings of shares with dual classes with different voting rights. That means some shares could have no voting rights, while others could carry multiple votes.
Macquarie's Werner considers that an encouraging step.
"If you look at where a lot of the Chinese ecommerce and tech companies have listed on the Nasdaq, if they've chosen to list there, it's because they can have that dual share class structure within their register," Werner said. "Some people would look at it as a weakening of the overall corporate governance, but I think it opens the door to a lot more optionality and potentially that also helps build out the tech sector and other sectors as well."
SGX plans other initiatives as well, such as changing regulations around stocks' minimum trading price and short-position reporting. But those initiatives will be spaced out, with a six to 12 month gap between major changes to allow traders to adjust, Loh said.
Last week, SGX also announced a tie-up with the Taiwan Stock Exchange to allow brokers in Taiwan to directly trade SGX-listed securities.
The exchange also has other attractions for investors, with Loh noting that its dividend yield of 4.2 per cent is well above Asia's average 2.5 per cent.
After the rout since the start of the year -- the Straits Times Index is down nearly 12 per cent year-to- date -- the market may also offer some value. As of last week, the market is trading at 10.8 times forward earnings, compared with a five-year average of 13.2 times, while the trailing dividend yield is at 4.6 per cent, compared with a five-year average of 3.5 per cent, according to data from Credit Suisse.