At first glance, Singapore's stock exchange looks as though it's in trouble.

On Feb. 13, Bloomberg published an article that examined how much the Singapore stock market has shrunk.

The shrinkage of the SGX is due to listed securities removing itself from the stock market, for a variety of reasons.

Delisting usually happens when a company could have gone bankrupt, merged with another company, or gone private.

So long, farewell

Whatever the cause, by end-2018, SGX listed 741 companies, compared to a peak of 782 in 2010.

In 2018, SGX raised S$710.6 million from 15 initial public offerings (IPOs), excluding depositary receipts.

However, 19 companies left, ending up with a net outflow of S$19.2 billion in market value.

Over the past five years, delistings have actually outnumbered listings in the market.

Big names leaving

Some of the businesses that have departed for pastures new might be familiar to Singaporeans.

GLP, one of the world's biggest logistics companies, delisted from SGX and went private.

Osim International, the massage-chair maker, delisted from SGX and attempted to list itself on Hong Kong's stock exchange (SEHK).

Chinese furniture company Man Wah Holdings Limited also delisted and re-listed in Hong Kong, at eight times its market value.

Even a homegrown company like Razer Inc. bypassed SGX altogether and went straight for Hong Kong.

Hong Kong has the advantage

Hong Kong enjoys several advantages over Singapore as a capital market.

Most obviously, it has stronger links than Singapore to one of the world's biggest economies, China.

In 2018, Hong Kong boasted the largest amount of money raised from IPOs, all US$33.5 billion of it.

They include names that your mom might have heard of, not just your cousin who went to business school.

Names like smartphone giant Xiaomi Corp. and food delivery mammoth Meituan Dianping, backed by Tencent Holdings.

And instead of just looking ahead, Singapore might need to look over its shoulders.

Chinese regional exchanges in Shanghai and Shenzhen are revving up, while our ASEAN neighbours Thailand and Vietnam are growing their own exchanges.

Why is SGX slowing down?

What are the possible reasons for SGX's downturn?

Due to our size, Singapore has a smaller pool of local companies, and no natural hinterland to serve as a consumer market.

But paradoxically, some of the cultural values that has contributed to our economic success, could also have encouraged the SGX to slim down.

For example, home ownership is encouraged in Singapore, where over 90 percent of the population own their own home.

This is compared to Hong Kong, where the home ownership rate dipped below 50 percent in 2017.

But this means that Singaporeans have less cash to invest in the stock market.

Bloomberg also suggests the old cliche that Singaporeans lack creativity and the entrepreneurial spirit to start companies that might grow bigger and list on the stock exchange. It may or may not be true.

It also cited two scandals that affected the market, the first being the discovery that some Chinese companies listed on SGX were fraudulent in the early 2010s. Several investors were "burned".

Then in 2013, three guys allegedly cooked up a penny-stock scheme to manipulate the market.

They allegedly pumped the shares of three small companies, which surged at least 800 percent in nine months, before crashing again. The market took another hit.

Government measures to regulate the exchange

Perhaps coincidentally, Workers' Party MP Leon Perera asked in Parliament what measures the government could take to minimise the risk of financial deterioration to companies listed on the SGX.

In reply on Feb. 13, Education Minister Ong Ye Kung (answering on DPM Tharman's behalf) acknowledged that investors bore unavoidable risk when investing in listed companies.

The government cannot ensure that no business failures happen. However, it does require SGX-listed companies to:

• Provide timely and accurate disclosure of all material information concerning their business, financial condition and prospects.
• Report financial results either quarterly or half-yearly, depending on their market capitalisation.
• If the board sees clear evidence of significant improvement or deterioration in the company’s near-term financial performance, it is obliged to make an immediate announcement.

This promotes transparency, and therefore confidence.

In addition, the frontline regulator SGX RegCo monitors company disclosure practices, and investigates where needed.

Less management of public companies, more private wealth management

Despite the overcast skies, it doesn't mean Singapore should panic, or that it's a sign that the economy is getting worse.

In fact, delisting companies that want to leave is a healthier option than allowing "zombie companies" to remain on the market just to boost the numbers and give an inaccurate picture.

While Hong Kong might have the size, Singapore could instead focus on what it's good at:

Bloomberg quoted Chua Hak Bin, a senior economist at Maybank Kim Eng Research Pte, and Chew Sutat, head of equities and fixed-income businesses at SGX to list its strengths:

• An established real estate investment trust market.
• High valuations for medical-services companies.
• A good track record in listing consumer stocks.
• Ability to help companies raise more money beyond their initial offerings.

Singapore can also point to its reputation as a private wealth hub, with private banks handling the staggering amount of over US$2 trillion in assets, which provides investment opportunities.

Solid economic fundamentals

Aside from money management, our economy has generally good economic markers.

Our GDP per capita, based on purchasing power parity ranks us third in the world, according to the IMF.

And the Singapore government has invested heavily in infrastructure and industries like biomedical science, health care and smart technology, creating more jobs.

Our vaunted stability continues to help attract foreign investment, with US$58 billion of FDI pumped into Singapore in 2017, which ranking us eighth in the world.

At the end of the day, a high-performing stock market might be nice to have, but an economy that keeps steadily growing is better.

(H/T Livia Yap, Tom Redmond, Andrea Tan, Joyce Koh, Chanyaporn Chanjaroen, Jeffrey Hernandez, and Justina Lee.)

Top image from SGX My Gateway's Facebook page