Capital markets The general exuberance in Singapore’s economy has also spilled over into its capital markets. Whilst investor sentiment has not yet reached the heady levels experienced in Hong Kong, 2010 has seen several large initial public offerings on the Singapore exchange including Global Logistic Properties, Singapore’s largest listing since SingTel’s IPO in 1993, and Mapletree Investment Trust, a unit linked to Temasek Holdings Ltd and the largest Singapore Reit IPO to date.
As at the end of October, 11 Chinese companies, making up about 33% of the newly-listed companies on the exchange this year, had also listed in Singapore this year, heralding the return of S-Chips, or SGX-listed Chinese companies, after a prolonged drought. These Chinese companies are mainly in the real estate and manufacturing industries. Among them, Global Logistic Properties raised US$6.69bn in its IPO, while Double Estate Co raised US$367.87m. The new entrants to the market appear to be faring well by all accounts – Global Logistic Properties chalked up a 10.7% gain on its IPO price of $1.96 on its first day of trading and Mapletree Investment Trust closed about 25% higher than the offering price of 93 cents, stealing the limelight as the day’s most actively traded counter on the day of its IPO in spite of trading for only half a day since its lunchtime debut.
Meanwhile the already listed Chinese companies have performed well, signalling what could be the end of a season of investor aversion to S-Chips. According to analysts, the index performance of S-Chip shares from August to October was 18% – 7 percentage points higher than the 11% seen by the Straits Times Index. The sterling performance of these new issuers comes as no surprise to most observers, as they reflect the underlying market sentiment, as well as the strong fundamentals of the Singapore economy.
Coupled with this surge in IPO activity the Singapore Stock Exchange has been on the front foot looking for other ways to grow its business in the face of competition from regional and international bourses. In October it extended its collaboration with Oslo’s OMX to facilitate dual listings of companies in the offshore sector between the two exchanges and as recently as two weeks ago it made a US$8.3bn offer to acquire the Australian Stock Exchange. If
successful, the latter could catapult SGX into another league particularly as a destination for mining and resource companies – this will be all the more so if SGX and ASX harmonise their listing criteria.
Dollar strength
Against the backdrop of its bullish economy, as well as measures adopted by the Monetary Authority of Singapore to tighten monetary policy in a bid to curb rising inflation, the Singapore dollar continues to strengthen against other currencies, reaching all-time highs against a weakened US$ in September.
Infrastructure: ahead of the curve For those wondering about the sustainability of Singapore’s current success, it is worth noting that the government continues to invest to protect its gains and to facilitate further expansion. On the infrastructure side, phases one and two of Singapore’s fourth MRT line, the Circle Line, opened this year with the final phases due to complete in Q1 2011. Construction of a fifth line, the Downtown Line, is well underway and for motorists construction of the Coastal Expressway is also well advanced. Further tourist revenue is likely to flow when the 94 hectare parkland project, Gardens by the Bay opens and work is expected to commence on the Sports Hub – a cluster development of integrated world-class sports facilities within the city and, with a value of some US$1.4bn, the world’s largest PPP sports infrastructure project.
Hangover ahead? However, any celebrations at this stage may be premature.
Firstly, Singapore’s impressive growth to date should be considered in the context of Singapore’s GDP contraction of 1.3% last year due to the global economic crisis. In comparison, China’s GDP grew at around 9% in 2009.
In its most recent session, parliament was informed by the minister of trade and industry that the Singapore economy fell 19.8% in the third quarter of 2010 – its largest contraction since 1975. The minister went on to report that the economy could further contract in the fourth quarter, resulting in the somewhat curious situation of a technical recession occurring contemporaneously with a full-year growth of 13% to 15%.
Some observers have dismissed these signs as a mid-cycle correction, which they expect to bottom out in the first quarter of 2011. Others have termed this a technical payback for the amazing quarter of growth that preceded it – an economic hangover that follows months of great economic news, soaring optimism, casino openings and a Grand Prix to remember. The major theme seems to be that having ramped up production at Singapore’s factories to restock inventories around the world, inventory levels are now where they need to be and demand for Singapore-manufactured products will once again start to wane. This was borne out when Singapore’s purchasing managers index fell just below expansion levels for the second straight month in September after 16 months.
As Singapore gets back to life under more normal conditions and the casino effect wanes, it will be interesting to see what 2011 will hold for businesses.
Joel Shen, associate, corporate practice, Stephenson Harwood, Singapore, tel: 00 (+ 65) 6226 1600, e-mail:
joel.shen@
shlegal.com
Business Money
Matthew Gorman, partner, corporate practice, Stephenson Harwood,
Singapore, tel: 00 (+ 65) 6226 1600, e-mail:
matthew.gorman@shlegal.com
November/December 2010 41
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