24 November 2022


Singapore’s stock market is one of the cheapest globally, providing opportunities for value and activist investors.

Some like it cheap. Value investors, for instance, and activist investors. And most of all value investors with an activist approach.

Singapore’s stock market is perfect for value investors as it is one of the cheapest in the developed world. Its benchmark Straits Times Index (STI) trades at a price- to-book ratio of 1.08, based on the 2022 expected book value. Only Hong Kong

trades at a lower valuation, which is partly due to the subdued outlook for the Chinese economy. The indices of Australia, China, and Europe trade at a ratio between 1.5 and 2, the MSCI World near 2.5 and the U.S. leading indices at comparably lofty heights (see chart, data provided by Bloomberg).

The STI is dominated by three banks, DBS, OCBC and UOB, which account for nearly 50 percent of the index’ market capitalization. Property and telecommunication make up another big chunk. That’s not exactly the stocks favored for their growth prospects, but for their dividend (and consequently the STI has one of the highest average dividend yields).

So is it just the composition of the benchmark index, which makes Singapore attractive for value investors?

If you look at Singapore’s stock market as a whole, the same picture emerges (see chart). All stocks listed in Singapore combined have an average price-to-book ratio of 1.4. That’s less than the average ratios of other developed countries in the region and also than Western Europe, the U.S. and the whole of developed Asia.

Singapore, known for its sound regulatory and legal framework, has a high proportion of small- and

mid-cap companies, which are often overlooked by investors and trade on relatively low liquidity. They often don’t get the visibility, analyst and broker coverage needed to attract public interest.

In addition, these stocks are often majority-owned by the founding family or the founder itself, meaning free-float investors have little influence over how the company is run. And that puts off potential investors. Why invest in a company where the founder alone runs the show and where investors cannot change course by raising their voice at the annual general meeting? This is exacerbated, when the founder has no interest in improving company operations or increasing shareholder return.

And lastly, the Singapore stock market ecosystem attracts a certain type of investor. Singaporeans often favor “boring”, defensive stocks with a solid dividend yield instead of demanding higher overall returns. They actually see their equity investment more as a fixed income: Give me my annual dividend and I don’t care about higher valuation.

And related to that, Singaporean (and generally speaking many Asian) shareholders are more passive than their counterparts in Europe or the U.S. To put it bluntly, an annual general meeting in the city-state might be more like the summer camp of choir boys compared to the sometimes rambunctious events in the western world.

So, buying Singapore stocks might be the right thing for value investors. But even more so it’s fertile ground for activism. Because buying undervalued equities might not be enough as the stock just keeps its low valuation. It needs someone (like an activist investor) to step in, make his voice heard and engage with the management and the public to maximize shareholder value.

Singapore has seen quite a few activist campaigns over the past years. But the market needs more disruption to promote shareholder value.