Follow in the Footsteps of the Singapore Capital Market for an Invaluable Success
As an international hub, Singapore has managed the challenges and successfully navigated through the ever-changing global landscape. Singapore has always been a role model among its peers in terms of economic development. The Singapore capital market is one such example. The government of Singapore is consistently proactive in ensuring the nation gets to enjoy its fruits of labour, even for generations to come.
During the recent Singapore Fintech Festival, Mr Michael Piwowar commented that Singapore is turning out to be a model of capital market development for some countries in the Middle East and Africa. The executive director of Milken Institute Center also noted that the Republic’s legal and institutional framework is ideal for developing nations to replicate, in terms of the development of capital markets. In recent years, Abu Dhabi, Kenya and Dubai have made a collective effort to improve their capital markets based on what they have observed in Singapore. They have launched international financial centres and signed cross-border agreements to enhance regulatory supervision. Such moves have attracted banks, companies and law firms globally. He also praised Singapore for the fine balance between responsible promotion of financial technology while preserving a culture for innovation.
Grabbing the Top Spots
Singapore’s well established and vibrant financial market has continued to attract many watchers even from the most regulated markets. Singapore began its economic bedrock way back in the 1960s, leveraging on its position as a trading port to establish the nation as a financial hub. Currently, Singapore is among the top five countries in the Global Financial Centres Index 2019. It also takes second place in the World Bank’s recent study of ease of doing business.
Singapore’s banking sector also takes the cake, with three local banks on Bloomberg’s list of the world’s strongest banks. The local banks are DBS Bank Ltd (DBS), Overseas-Chinese Banking Corporation Ltd (OCBC) and United Overseas Bank Ltd (UOB). Each of them has solid financial fundamentals in terms of being well-capitalised and profitable. They also have a low level of nonperforming assets, as well as healthy levels of funding and liquidity. Banks located in Singapore not only provide traditional roles of lending and deposit-taking, but they also perform more complex functions such as corporate and investment banking. It is noteworthy to know that Singapore has emerged as leading wealth management and private banking hub with more high net worth individuals in Asia, Europe and other regions pouring in their confidence in Singapore.
The foreign exchange market in Singapore is ranked third largest in the world by turnover. The first is the United Kingdom, and the United States takes second place. The ranking is based on the 2016 Bank for International Settlements triennial central bank survey. Singapore’s average daily volume of foreign exchange turnover and derivatives turnover amounted to USD419.2 billion and USD87.3 billion respectively in April 2016. Singapore also ranks the largest over-the-counter (OTC) interest rate derivatives centre in the Asia Pacific by turnover. The large trading volume is partly due to Singapore’s time zone, which is well suited for trading of the Asian currencies. Singapore has positioned itself as a major global trading and treasury hub serving investment and risk management need in the Asian time zone.
Singapore’s public equity market is becoming a favourite among foreign investors, with the Singapore Exchange (SGX) having over 40% of its listings coming from outside Singapore. With almost 800 companies listed and being the largest Real Estate Investment Trust (REIT) market in Asia, minus Japan, there is much dynamism in the market. With a wide range of global derivatives being traded on the derivates market, it has also grown to a position of dominance within Asia and become renowned as a regional risk management centre for global investors. SGX received the Global Exchange of the Year and Exchange of the Year 2015 for its sustained innovation across risk management portfolios. In recent years, Singapore has risen in importance as an important international debt arranging hub with the total corporate debt capitalisation reached SGD200 billion by 149 issuers at the end of 2014. Renminbi bonds increased by 153% in 2014, exceeding RMB 35 billion. The Singapore Government, statutory boards and supra nationals also maintained issuance of bonds.
On the asset management front, Singapore has proven itself to be the front runner in Asia. In 2015, assets under management rose to a new high of SGD 2.6 trillion with 80% of funds coming from outside of Singapore and over 60% of funds invested in the Asia Pacific. Singapore has become channel for international investors searching for investment opportunities within Asia. The 628 fund managers hail backgrounds ranging from traditional asset managers to hedge funds, private equity and real estate managers. Asset classes are also well-diversified across equities, fixed income, alternatives, mutual funds and money markets. The insurance industry in Singapore also plays the role as a base hub from which regional risks are written from. The total insurance industry assets stand at SGD 197.4 billion in 2014, with offshore insurance business driving a significant part of growth.
An Offshore Renminbi Trading Hub
In a 2014 report by Society for Worldwide Interbank Financial Telecommunications (SWIFT), Singapore is the biggest offshore renminbi (RMB) trading hub outside of China and Hong Kong by payment value. Through leveraging on the liberalization of the RMB by China, Singapore’s financial sector has enjoyed a new catalyst of growth. The China Foreign Exchange Trade System enabled the direct trading of RMB and SGD. Overnight RMB liquidity products were also made available to provide short term funding needs of the financial institutions. RMB currency futures, namely for USD/CNY and CNY/USD were also launched on the SGX in 2014.
Asia’s International Financial Centre
Singapore’s success in becoming a reputable international financial centre stems from the consistently high standards of financial regulation that allows well-managed risk-taking and innovation. The Monetary Authority of Singapore (MAS) functions as Singapore’s central bank, formulating and implementing monetary policy and is responsible for the supervision and development of the financial services sector. MAS’s supervisory objectives include promoting a stable financial system, safe and sound intermediaries, safe and efficient infrastructure, fair, efficient and transparent markets, transparent and fair-dealing intermediaries and offerors, as well as well-informed and empowered consumers. MAS performs the tasks of regulation, authorisation, supervision, surveillance, enforcement and resolution. It also collaborates with other authorities and principal regulators to facilitate corporate governance, market discipline, consumer education and consumer safety net. MAS benchmarks itself against global standards and best practices such as capital rules by Basel Accords and recommendations by Financial Action Task Force (FATF) on countering of money laundering. MAS’s sound regulation and rigorous supervision have won investors’ confidence in Singapore’s financial system. MAS’ constant active consultations with the industry on new initiatives, have resulted in a responsive and progressive financial system.
To stay ahead of the pack, Singapore must continue to plan, invest and anticipate changes in the evolving global financial landscape.