SmallChange

SGX, get the IPO party going again for small investors

Making it compulsory for listing aspirants to allocate at least 5% to retail investors is a good start

I'm probably the kind of investor that the Singapore Exchange (SGX) is aiming to capture when it announced recently that it is relooking ways to rejuvenate interest among retail investors to trade on the stock market.

As an investor, I'm particularly keen on two of its initiatives.

Firstly, it wants to widen the "tick" size for shares trading in the $1-$1.99 range from half a cent to one cent. A tick is the minimum price movement. Under current rules, the tick for shares between 20 cents and $1.995 is half a cent.

Intuitively, this makes shares that are at the higher end of this range less attractive to trade than lower-priced ones due to lower volatility. For example, a one-tick rise in a $1.50 stock represents a percentage gain of just 0.3 per cent whereas the same increase in a 50-cent stock works out to 1 per cent. This is one reason that traders looking for a punt prefer to focus on lower-priced stocks.

Therefore, widening the tick size could help kickstart life in moribund second-liners in the $1-1.99 range.


ST ILLUSTRATION: ADAM LEE

Although I'm not into short-term trading, I'm behind any move that will lure retail investors back into the fray.

The other rule change I'm keen on - and have a more personal interest in - is to make it compulsory for a listing aspirant to allocate a retail tranche of at least 5 per cent of an initial public offering (IPO) for a mainboard listing.

This change came into effect on May 2. Previously, there was no such requirement and issuers were free to place out 100 per cent of their offer shares to selected clients.

As recently as eight to 10 years ago, I was a fairly active investor in the stock market. But as time went by, my trades dwindled.

Just to be sure my memory isn't coloured by nostalgia, I did a quick scan of my past trades. Indeed, my active trading periods correlated with the number of IPOs that I managed to land.

From 2003 to 2006, my wife and I successfully applied for 37 IPOs, the bulk of which we flipped on debut. In contrast, between 2013 and 2016, we had only four successful applications.

To be sure, I was never a prolific trader even during my most active period.

Firstly, I tend to take a long-term view on my stock investments and rarely buy shares to churn. I'm always mindful about keeping my transaction costs low.

Secondly, I don't have the patience or doggedness to keep tabs on my portfolio or look for buying opportunities.

The sole exceptions were IPOs because a decade or so ago these investments were an easy avenue for making almost surefire gains.

The IPO of Chartered Semiconductor in November 1999 gave me my biggest single payoff. It was priced at $3.34 a share. I sold the shares when they crossed the $10 mark on the first trading day of the millennium.

That's why I would dutifully queue up at the ATM to subscribe to shares whenever an IPO came up which, 10 to 15 years ago, was quite often. Come debut time, I would then sell my IPO shares for a profit.

The IPO of Chartered Semiconductor in November 1999 gave me my biggest single payoff. I didn't even have to try my luck at the ATM. Overseas Union Bank, which was the lead manager for the Singapore offering, was happy to offer some shares to its ordinary bank account holders. The IPO was priced at $3.34 a share. I sold the shares when they crossed the $10 mark on the first trading day of the millennium - that is, after about two months.

I had similarly good luck with Chartered Semicon's then sister company ST Assembly when it, too, embarked on a listing a little later.

I was lucky not just in getting hold of the IPO shares but also in offloading them sooner rather than later.

I don't profess to have any special insight. It's just that I simply could not resist cashing out as a result of the terrific initial price gains.

Selling the shares proved to be the right decision as events panned out. The fortunes of Chartered Semicon and ST Assembly took a nosedive not long after and they were eventually sold to, or merged with, a competitor and delisted at a small fraction of their IPO price.

The years between 2004 and 2007 were rewarding for stagging IPOs. (To stag an IPO is to cash out on its debut or soon thereafter.)

My record shows a doubling and even trebling of profit from stagging counters such as SBI E2-Capital, Bio Treat, Unified Communications and Yongxin International.

Of course, I had my share of duds. Some IPOs I got tanked from the start, the most memorable being the Malaysia-based Texchem-Pack Holdings. The stock never spent a single day above its IPO price from the time it debuted in November 2006 to its delisting in April last year.

Other bad decisions I made were stagging stocks that I should have kept (SingPost and CapitaLand Retail China Trust) and keeping shares I should have sold (Kingboard Copper Foil, Metal Components and Cacola Furniture).

But that's the nature of the stock market - you win some, you lose some.

However, as the pipeline of IPOs began to slow down in the last few years, so has my trading activity. It didn't help that some IPOs performed badly on debut.

Of course there is nothing to stop me from trading existing stocks in the market. In fact, I do buy and keep a stock whenever I feel there is a bargain to be had.

Still there is nothing like a hot IPO issue to fire up my trading appetite.

To get more of my business, the SGX needs to attract more IPOs, preferably the really big ones like Saudi Aramco, Saudi Arabia's national oil company.

Even if they are not big issues, they need to be sufficiently sizeable to offer a significant number of shares to retail investors.

But not for me the recent Catalist listings in which the entire issues were placed out to favoured investors.

Give me something like Chartered Semicon so that I can party again like it's 1999.

A version of this article appeared in the print edition of The Sunday Times on May 14, 2017, with the headline 'SGX, get the IPO party going again for small investors'. Print Edition | Subscribe