By R SIVANITHY
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IN A Monday column, we reported that the Singapore market is now a penny stock market, with about 84 per cent of listed shares trading below the traditional penny threshold of $1 per share and 47 per cent below the minimum initial public offer price of 20 cents per share.
This observation has elicited interesting responses from readers that warrant an airing and, hopefully, might provoke meaningful debate in BT's pages.
First, it's worth noting that Singapore is not alone in sinking to penny status and that Hong Kong falls in the same category. If we take HK$5 as approximating one Sing dollar, then statistics compiled by BT show that, as of Monday's closing prices, 83 per cent of HK Exchange (HKEx) listed counters excluding warrants can be categorised as penny stocks - almost exactly the same as the Singapore Exchange's (SGX) 84 per cent.
Lower the penny barrier to HK$1 or about 20 Singapore cents and the fraction is uncannily similar again: 53 per cent on HKEx versus SGX's 47 per cent.
The similarities don't end there. Both exchanges also share similar market capitalisation statistics, although SGX actually has the edge here. For example, while 4.3 per cent of HKEx stocks (55 stocks) are all that are needed to cover 80 per cent of the entire market cap, you'd need 8.3 per cent (65 stocks) of SGX-listed companies to obtain the same coverage.
For completeness, we raised the bar to 90 per cent of market cap and found that this was accounted for by just 10 per cent of HKEx-listed firms, while for SGX the proportion is about 18 per cent.
(The other way of looking at it is that in HK, 90 per cent of listed companies account for just 10 per cent of market cap, while on SGX, 82 per cent of listed entities account for 10 per cent of market cap.)
The conclusion therefore has to be that if Hong Kong - long regarded as the region's leading market - is now of penny status, then perhaps it shouldn't be surprising that the same fate has befallen the local market.
Second, should SGX try to effect any changes to influence the penny phenomenon? One reader said yes, because the source of the penny issue is that many IPOs are structured as such to begin with, and that in order to ensure penny status, underwriters are now issuing a huge amount of shares, up to a billion in some cases.
The reason hazarded is that minimum price moves below $1 yield higher percentage returns than above $1, so underwriters, companies and even the exchange prefer penny issues because it results in higher liquidity, albeit in more speculative trading.
Should SGX be more proactive in ensuring IPOs are priced at higher absolute prices, possibly above $1? No - other than specifying a minimum level of 20 cents (which was put in place to ensure that ridiculously low prices such as five cents or one cent are avoided) and ensuring compliance with listing rules, it is not the business of the exchange to dictate IPO pricing.
In fact, IPO pricing is a hugely difficult affair with many complex variables to consider, and it is best left to companies and their sponsors or underwriters to decide for themselves what is appropriate. The less regulatory interference there is, the better.
Finally, should authorities be concerned at the penny prevalence? Possibly, since it doesn't do one's reputation much good to be known as a penny market.
Then again, there really isn't much that can be done to change this because the polarisation of markets into the very large and very small seems to be occurring elsewhere too, not just here. Perhaps it is simply the natural progression of all markets to be eventually divided into the sizeable and the tiny.
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