(In the spirit of celebrating national day...)
If there was ever a modern day HBS corporate case study that highlights the resilience of Singapore firms, Singapore Airlines (SIA) might just make the cut.
About just slightly over a year ago in May 2023, SIA reported highest ever net profit in its 76-year history, outperforming its long-time competitor in Hong Kong, Cathay Pacific (CX).
Like the onset of COVID which has been widely seen as an 'unprecedented' occurrence, this unprecedented performance could also be attributed to the timely confluence of various events - the restarting of global travel, abolishment of hotel quarantines, Singapore’s re-opening to the rest of the world, while Hong Kong continued to suffocate under mostly closed doors.
You can attribute this to the strong branding of Singapore’s flagship carrier, or its creative and fast response towards cost-cutting by putting a part of the fleet in cold storage, offering up meals in the air, or the ironclad financial backstop by parent company Temasek Holdings when the company embarked on its fundraising spree in 2020 to stem the cash bleed.
There are possibly a dozen other reasons, but one simply cannot ignore that these circumstances - both internally and externally - have facilitated the emergence of SIA as one of the champions from the pandemic.
That was nearly two years ago.
Since then, the world has re-opened and life as we know it has mostly returned to normal. But financial markets and the current state of the global economy are now paying the price for cheap money used to cushion the economic impact of COVID-19. The volatile state of geopolitics has also been putting a drag on growth.
In Asia’s largest market, cracks have also started to form for a while.
Unemployment data in China remains stubbornly high, debt-ridden property developers are still in a process of unwinding, there is also diminished spending on luxury items across the board, significant pay cuts within the finance sector, and not to mention the outflows of foreign capital.
Even policies around trade have increasingly become a weaponized tool for statecraft.
Investors and market watchers seem to be waiting for a rude ‘wakeup call’.
Maybe something must be broken, such as a market crash, or a big recession, before things finally (and hopefully) start to get better.
The more important question perhaps is: for how long more?
Even Hong Kong, a key financial center for China and once touted as the go-to hub for IPOs in Asia, have also fallen victim to the exodus of investors.
And just like how SIA overtook CX when it bounced back from the pandemic, the biggest beneficiary of this outflow of investors seems to be Singapore.
Just last week, MAS announced that a team had been assembled to “strengthen the equities market development” in Singapore as part of boosting the city’s position as a choice destination for equities investors.
Aside from incentives, this initiative also includes amongst others, the establishment of more financing vehicles, corporate structures, share classes, encouraging research coverage, as well as fostering greater engagement with private and public stakeholders within the capital markets ecosystem.
For years, the Singapore Exchange has been beleaguered by poor liquidity and the quality of its listings.
Based on a PwC report, in 2023, only 7 companies went public in Singapore as compared to 73 and 79 in Hong Kong and Indonesia respectively. Over that same period, both Hong Kong and Indonesia had also raised US$ 5.94 billion and US$ 3.55 billion respectively from the IPO of companies.
By comparison, Singapore as a listing destination had raised only US$ 0.03 billion, a miniscule fraction of the nearly S$ 900 billion of assets managed by private equity, venture capital and hedge fund investors in the city.
Combine this with over S$ 800 billion in deposits from the commercial banks, this in theory should present an opportunity to mobilise at least SGD 1.7 trillion of retail and institutional capital, direct some of it towards public growth capital for Singapore companies, and in the process, re-igniting the sleepy equities market.
As long as China remains an economic powerhouse in the region, Hong Kong’s position as the center of Asia’s equities markets will be difficult to replace.
But there is a silver lining. Singapore can benefit from companies looking to diversify their business outside of China or use it as a springboard for markets in Southeast Asia.
We have a unique window of opportunity.
Much like how SIA had turned itself around in 2022, if we play our cards well today, Singapore’s equities market might have a fighting chance to capitalize on this current trend to re-invent itself as a winner within the region.