ChiNext’s launch, Shanghai’s planned international board could dim Singapore’s draw
By LYNETTE KHOO 02 November 2009
(SINGAPORE) Recent market developments in China have raised questions over the Singapore Exchange’s continuing ability to attract Chinese companies, which make up the biggest group of foreign firms listed on the local bourse.
Last Friday, China’s growth enterprise market ChiNext made a robust debut, with all 28 stocks staging a spectacular surge.
While that has fattened the pockets of many Chinese investors, it has left some sobering questions for market players here, with some wondering if the Singapore Exchange (SGX) could potentially be sidelined as a key listing venue for Chinese companies.
Also of concern is the soon-to-be launched international board on Shanghai Stock Exchange to allow overseas companies to list in the A-share market.
This is seen as a move to trigger a return of ‘red chips’ - companies registered and listed overseas - to Shanghai.
These developments pose a serious challenge, said one issue manager. ‘We are already not the first choice for Chinese companies,’ he lamented.
Still, such fears are unlikely to materialise in the near term. While competition for listings is bound to rise, Singapore will continue to win a slice of the China action given the sheer number of listing companies and the long queue to list in mainland Chinese markets, market watchers say. Hundreds of companies are said to be waiting for approval to list on Chi- Next, for one.
‘There will always be companies that want to list in Singapore for a number of reasons,’ said Stamford Law director Soh Chun Bin. ‘The approval process here is still much faster than in China and of course, the Chinese exchanges are always more geared towards the larger companies.’
Some Chinese companies see Singapore as an international platform, while Singapore’s perceived high standards of corporate governance also draws a certain group of Chinese entrepreneurs.
A potential exodus of S-chips to the upcoming international board in Shanghai that could debut next year may not happen immediately as the new International Board in Shanghai is likely to attract the big boys for a start.
HSBC, for instance, has expressed its interest to be the first IPO on the board through a listing worth a reported US$3 billion to US$7 billion.
But in the longer term, the SGX will have to raise its game to continue attracting Chinese companies given the mounting competition.
One bugbear is valuations. The common complaint is that the Singapore market offers unattractive valuations when it comes to Chinese companies.
Last Friday’s fiery rally on Shenzhen’s ChiNext left stocks with around 100 times price-to-earnings (PE).
Meanwhile, the FTSE ST China Index in Singapore - comprising S-chips and other China-related plays - is trading at 13 times estimated PE, and this after rising 57.7 per cent year-to-date to 293.20 points.
One reason is that a lot of liquidity in China had gone into stocks and property, given the lack of other investment options and restrictions on capital outflow through quotas for qualified domestic institutional investors (QDIIs) and a cap on individuals’ offshore exposure.
Only in the last two years were mainland Chinese investors allowed to trade directly in Hong Kong shares.
‘The market in China is still young, nascent and less reflective of true value. The entire Chinese market is a bubble because of the yuan,’ said one observer.
‘Once investors have more options, there will be some adjustments,’ said David Hoon, co-head of investment banking at CIMB Bank. ‘In the longer term, the disparity in valuations will narrow.’
Still, more needs to be done to improve valuations of Chinese companies on the SGX, like promoting research coverage of S-chips.
‘It is a chicken and egg situation. If you don’t have a good following of research analysts, you will not be able to attract investors as well,’ said Mr. Soh of Stamford Law.
The SGX has encouraged research coverage of less well-covered stocks through its Research Incentive Scheme, but this has met with mixed results, with the cost of the scheme discouraging some companies from joining.
The exchange has also rolled out other initiatives to boost its attractiveness as a market place, including the revamp of the secondary board for fast-growing companies, speeding up the listing process, and signing pacts with other exchanges to facilitate collaboration.
Over time, the SGX may need to wean itself from its heavy reliance on Chinese listings, which make up over 40 per cent of foreign listings, market players say. But attracting listings from non-Chinese sources may prove difficult too.
For instance, in India, the government passed regulations requiring all Indian companies to list in India before they are permitted to seek an offshore listing, effectively cutting the flow of Indian listings to Singapore.
To avoid over-reliance on foreign listings, Singapore should nurture more home-grown companies with the potential to list, said Robson Lee, partner at Shook Lin & Bok.
SGX could also make its over-the-counter (OTC) market more dynamic to attract secondary listings and issue Singapore Depository Receipts based on the principle of caveat emptor, he said, in view of the increasing appeal of Taiwan’s OTC market which, ironically, is attracting some S-chips.
With Magnus Bocker, president of Nasdaq OMX, becoming CEO of SGX come Dec 1, market watchers are expecting more cross linkages and OTC initiatives with other exchanges to take place.
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China moves pose IPO challenge for SGX
ChiNext’s launch, Shanghai’s planned international board could dim Singapore’s draw
By LYNETTE KHOO
02 November 2009
(SINGAPORE) Recent market developments in China have raised questions over the Singapore Exchange’s continuing ability to attract Chinese companies, which make up the biggest group of foreign firms listed on the local bourse.
Last Friday, China’s growth enterprise market ChiNext made a robust debut, with all 28 stocks staging a spectacular surge.
While that has fattened the pockets of many Chinese investors, it has left some sobering questions for market players here, with some wondering if the Singapore Exchange (SGX) could potentially be sidelined as a key listing venue for Chinese companies.
Also of concern is the soon-to-be launched international board on Shanghai Stock Exchange to allow overseas companies to list in the A-share market.
This is seen as a move to trigger a return of ‘red chips’ - companies registered and listed overseas - to Shanghai.
These developments pose a serious challenge, said one issue manager. ‘We are already not the first choice for Chinese companies,’ he lamented.
Still, such fears are unlikely to materialise in the near term. While competition for listings is bound to rise, Singapore will continue to win a slice of the China action given the sheer number of listing companies and the long queue to list in mainland Chinese markets, market watchers say. Hundreds of companies are said to be waiting for approval to list on Chi- Next, for one.
‘There will always be companies that want to list in Singapore for a number of reasons,’ said Stamford Law director Soh Chun Bin. ‘The approval process here is still much faster than in China and of course, the Chinese exchanges are always more geared towards the larger companies.’
Some Chinese companies see Singapore as an international platform, while Singapore’s perceived high standards of corporate governance also draws a certain group of Chinese entrepreneurs.
A potential exodus of S-chips to the upcoming international board in Shanghai that could debut next year may not happen immediately as the new International Board in Shanghai is likely to attract the big boys for a start.
HSBC, for instance, has expressed its interest to be the first IPO on the board through a listing worth a reported US$3 billion to US$7 billion.
But in the longer term, the SGX will have to raise its game to continue attracting Chinese companies given the mounting competition.
One bugbear is valuations. The common complaint is that the Singapore market offers unattractive valuations when it comes to Chinese companies.
Last Friday’s fiery rally on Shenzhen’s ChiNext left stocks with around 100 times price-to-earnings (PE).
Meanwhile, the FTSE ST China Index in Singapore - comprising S-chips and other China-related plays - is trading at 13 times estimated PE, and this after rising 57.7 per cent year-to-date to 293.20 points.
One reason is that a lot of liquidity in China had gone into stocks and property, given the lack of other investment options and restrictions on capital outflow through quotas for qualified domestic institutional investors (QDIIs) and a cap on individuals’ offshore exposure.
Only in the last two years were mainland Chinese investors allowed to trade directly in Hong Kong shares.
‘The market in China is still young, nascent and less reflective of true value. The entire Chinese market is a bubble because of the yuan,’ said one observer.
‘Once investors have more options, there will be some adjustments,’ said David Hoon, co-head of investment banking at CIMB Bank. ‘In the longer term, the disparity in valuations will narrow.’
Still, more needs to be done to improve valuations of Chinese companies on the SGX, like promoting research coverage of S-chips.
‘It is a chicken and egg situation. If you don’t have a good following of research analysts, you will not be able to attract investors as well,’ said Mr. Soh of Stamford Law.
The SGX has encouraged research coverage of less well-covered stocks through its Research Incentive Scheme, but this has met with mixed results, with the cost of the scheme discouraging some companies from joining.
The exchange has also rolled out other initiatives to boost its attractiveness as a market place, including the revamp of the secondary board for fast-growing companies, speeding up the listing process, and signing pacts with other exchanges to facilitate collaboration.
Over time, the SGX may need to wean itself from its heavy reliance on Chinese listings, which make up over 40 per cent of foreign listings, market players say. But attracting listings from non-Chinese sources may prove difficult too.
For instance, in India, the government passed regulations requiring all Indian companies to list in India before they are permitted to seek an offshore listing, effectively cutting the flow of Indian listings to Singapore.
To avoid over-reliance on foreign listings, Singapore should nurture more home-grown companies with the potential to list, said Robson Lee, partner at Shook Lin & Bok.
SGX could also make its over-the-counter (OTC) market more dynamic to attract secondary listings and issue Singapore Depository Receipts based on the principle of caveat emptor, he said, in view of the increasing appeal of Taiwan’s OTC market which, ironically, is attracting some S-chips.
With Magnus Bocker, president of Nasdaq OMX, becoming CEO of SGX come Dec 1, market watchers are expecting more cross linkages and OTC initiatives with other exchanges to take place.
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