Traders Without Borders, Part 3: Singapore

This Week on Traders Without Borders, we’re taking a close look at the retail market in Singapore, the closest contender to Hong Kong for Asia’s global financial capital and the home of SGX, the Singapore Exchange. Singapore may have been hard hit in the 2008 crisis, but the market holds many lessons in attracting young, mobile savvy and engaged investors to other developed markets. These are the unique characteristics of Singapore’s retail market today.

Optimistic & Tech-Obsessed Investors

With new regulations in place, Singapore’s retail investors are some of the world’s most optimistic. In a study from CFA Institute, 90% of Singaporean investors believe they have a fair opportunity to profit by investing, compared to only 70% in the United States.

Singapore optimistic

Source: CFA Institute

Singaporeans are also the most social investors in the world, with 26% reporting that they consider their social networks most trustworthy for investment advice. When choosing a financial institution, Singaporeans are some of the world’s most tech-obsessed, with 81% of investors using their smartphones to trade. 50% of Singaporeans say that access to the latest technology is more important than having a person to help navigate their investment strategy. In the United States, only 27% of investors believe this, most of whom are younger millennial investors.

Outward-Facing

SGX Trade Volumes

Source: SGX

Most of Singapore’s retail investors look overseas for opportunity, since the city-state has a small domestic market and a population of only 6 million. In the past, Singaporeans have flocked to Chinese companies, but they have shifted their preference towards US-based investments since 2015. Together, overseas investments represent almost half of the share volume traded on SGX daily.

Retail-Friendly Regulations

Singapore’s retail investors were devastated in 2008 by the financial crisis, and again in 2013, when a penny-stock crash washed away $8 billion of market value in three days. Since then, SGX has enacted regulations to protect retail investors, in an effort to lure them back with the promise of a level playing field.

Singapore Participation

Source: Investment Trends

First, they introduced a minimum trading price of S$0.20 on all listings. This essentially bans the hyper-volatile micro-cap stocks that caused the 2013 penny stock crisis. Second, they reduced the lot size from 1000 to 100 shares. This reduces barriers to entry, offering small-account investors access to reliable blue-chip stocks that were previously owned by institutional investors only.

Since these changes were initiated, retail participation has taken off, especially with younger generations. Today, 29% of new brokerage accounts come from investors aged 25 and under, compared to just 19% in 2011. 5.2% of Singapore’s population now trades online, giving it one of the highest participation rates worldwide.

A Model for Others

American exchanges need to step up their protections for retail investors, as evidenced this winter by rampant high-frequency trading fraud. Since 2013, Singapore’s exchange has done just that, and participation has skyrocketed. Today, SGX serves as a success-story for retail-friendly regulations that build trust and increase participation. Other developed markets should follow suit.

With strong protections in place and waves of new investors entering the market, it’s clear that Singapore’s retail investing market is poised for growth over the next few years. We see opportunity in building mobile-first solutions for their social, tech-savvy investor population as it continues to grow.

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