What is in the news?

SGX has announced that it will mandate all Mainboard IPO companies to allocate at least 5%, or SGD50mn, whichever is lower, of their offer size to retail investors. This mandate is aimed to facilitate greater retail participation in the Singapore’s equities market. The new rules on the minimum allocation will be effective 2 May 2017.

How do we view this?

• Not fulfilling the minimum retail allocation does not preclude a Mainboard IPO. Though the mandate requires new Mainboard IPO prospects to provision a minimum allocation to retail investors, it does not prevent an IPO from proceeding if there is insufficient retail interest to make up the minimum allocation. Upon IPO, there will be a window period for the companies to ramp up retail vested interest to the minimum level. However, if the minimum level is not met, institutional interest may come in to fill the gap. Currently, the window period to ramp up retail vested interest is not disclosed.

• Singapore household* interest in Listed Shares on a secular down trend and we do not expect the mandate to move the needle. We noticed that the quarterly growth rate of Singapore households’ allocation to Listed Shares are on a negative trend since 2011 (See Figure 2). Similarly, the percentage of Listed Shares to Total Household Assets have come off from the peak of 7% in 2Q2007 to 4.2% in 4Q2016, a 40 % collapse (Figure 3). Based on past trends, we opine Singapore household allocation to Listed Shares are driven more by confidence brought on by macroeconomic events rather than any regulatory measures.

*Singapore household units include Singapore citizens, permanent residents, foreigners and unincorporated enterprises (e.g., sole proprietorships).

Figure 1: Singapore Household’s Listed Shares by Value

Source: Singstat.gov.sg

Figure 2: Singapore Household’s Compounded Quarterly Growth Rates between Selected Periods

Source: Singstat.gov.sg

Figure 3: Percentage Component of Singapore Household’s Listed Shares to Total Assets

Source: Singstat.gov.sg

YTD February 2017 market statistics update. SGX’s securities daily average value (SDAV) for Jan and February 2017 was SGD1.228bn, up 1.07% year-on-year (y-o-y) following an overall risk-on momentum which also saw S&P500 Index up 5.79% year-to-date and Dow Jones Industrial Average Index up 6.43% year-to-date. The SDAV growth is higher than our 3Q17F SDAV forecast of SGD1.13bn. Total Derivatives volume was 12.47 million, up 7% month-on-month (m-o-m) but down 10% y-o-y. SGX’s Total Derivatives volume was supported by strong m-o-m growth from Equity Index Futures contracts and Commodities Derivatives contracts. Iron Ore Derivatives volume was 1.31 million, up 28% m-o-m and we attribute the increase to the surge in Chinese imports of key commodities including iron ore during the month of February.

Investment Actions

We view that the mandate for minimum allocation of new Mainboard IPOs for retail investors could facilitate more retail participation in equity investing but the main driver would still lie with increased confidence to invest. Maintain “Accumulate” with TP of S$7.75.