Equity Reset: Singapore’s Path to Market Sovereignty

The Monetary Authority of Singapore (MAS) needs to implement more radical reforms to make the city-state’s equities market competitive. While the S$5 billion Equity Market Development Programme (EQDP) is a step in the right direction, it may not be adequate for Singapore’s finance centre to address the underlying structural issues. This necessitates a longer term scheme to sustain long-run equity market appeal. 

With the funds to be channelled into domestic equities through partnering with Singapore-domiciled fund managers, industry observers note that the EQDP still does not provide for a sovereign capital backstop, a core element in finance centre peers globally. This is necessary to attract and sustain a cycle of institutional capital flowing and underwriting the equities market.

To strengthen Singapore’s economic sovereignty, the MAS must tackle chronic liquidity issues and structural problems, rather than just making public share sales easier and cheaper. Prolonged central bank intervention may be necessary to achieve this goal. Key areas for reform include:

• Addressing structural issues in the equities market
• Providing a public sector capital backstop to attract institutional investment
• Improving long-run primary and secondary market liquidity
• Implementing measures to reduce reliance on central bank intervention

This will enhance Singapore’s economic sovereignty through a more competitive equities market, a pressing imperative in a fragmented world defined by geopolitical volatility.

Singapore’s Struggles

Singapore Exchange’s (SGX) struggle to attract new listings reflects a fundamental market reality: companies list where they can access the cheapest capital. Enterprises prioritise venues with low cost of capital and high share turnover. This in turn enables price discovery, equitable valuations and secondary market liquidity.

The EQDP will boost fund flows in the near-term. But outside of established blue chip brands and real estate investment trusts (REITs), SGX and Singapore’s equity markets will struggle to offer compelling cost advantages compared to regional alternatives and global peers.

A number of industry veterans have recently left the bourse amid efforts to revive the equities franchise. Meanwhile, the city-state has to contend with retail investors shunning domestic equities for US stocks and younger investors looking to alternatives like cryptocurrencies. 

The competitive dynamics are shaped by a critical difference in market structure. Regional exchanges like Bursa Malaysia (BM) and the Stock Exchange of Thailand (SET) benefit from captive domestic liquidity – their local pension and investment funds are mandated to allocate significant capital to domestic listings. This effectively lowers the cost of capital for listed companies.

This creates a self-reinforcing challenge for SGX and the corresponding challenge of economic sovereignty. Private capital questions why they should commit investments when Singapore’s state-linked funds aren’t required nor incentivised to do so.

Without this domestic capital base, Singapore’s cost of capital remains relatively high, deterring potential listings and reducing market vibrancy. Yet mandating local investment by sovereign funds raises policy concerns and could compromise investment returns.

The path forward likely requires enhancing SGX’s natural competitive advantages rather than relying on forced domestic investment, as well as the MAS facilitating market support and stability. However, while de-listings have economically negative effects for the market as a whole, this must be positioned within the context of evolving equity capital markets.

However, since the February 2025 announcement by MAS of measures to support Singapore’s equity markets, trading volumes have increased and the flagship Straits Times Index (STI) crossed the 4,000 mark, a historic milestone. 

Yet, success in global markets demands authentic market strength, not artificial support that could weaken Singapore’s broader financial ecosystem. But a foundation must still exist for its equities market to be competitive.

Central Bank Intervention(s)

Central banks worldwide typically do not invest in domestic equities as part of their monetary policy operations. Instead, they focus on providing liquidity through other means, such as:

1. Open market operations
2. Lending to financial institutions
3. Asset purchase programs (usually government bonds and fixed-income securities)
4. Foreign exchange interventions

Investing in domestic stocks could create conflicts of interest and distort market dynamics. While few central banks may engage in such practices, this is the exception rather than the norm.

Most central banks avoid direct participation in their home equity markets, preferring to support liquidity and reduce capital costs through more conventional policy tools. That being said, the Bank of Japan (BOJ), Hong Kong Monetary Authority (HKMA) and Swiss National Bank (SNB) are exceptions.

In 2020, the BOJ held $434 billion in domestic equities – making it the largest owner of Japanese stocks that year, surpassing Japan’s’ Government Pension Investment Fund (GPIF). For most other central banks, equity investments play a much smaller role, typically representing just 11.9% of their overall reserves on average. Allocations range from as low as 2% to as high as 25%, often as part of a broader diversification strategy rather than a primary monetary policy tool.

The BOJ’s ETF purchasing program is a unique approach among central banks, as most prefer to support liquidity and reduce capital costs through conventional methods such as open market operations, lending, and asset purchases. In contrast, the BOJ’s direct participation in the Japanese equity market through ETF purchases has had a significant impact, increasing market liquidity and reducing volatility.

Other central banks, like the Swiss National Bank (SNB) and Hong Kong Monetary Authority (HKMA), take different approaches compared to the BOJ.

The SNB does not directly invest in Swiss equities as part of its monetary policy, instead focusing on a diversified portfolio of foreign currency-denominated assets, including global equities, to achieve long-term returns. This approach helps maintain a stable Swiss franc and indirectly supports domestic market conditions, but does not directly underwrite liquidity in Swiss stocks.

Key differences between the BOJ and SNB approaches include:

• Direct vs. indirect market participation: The BOJ directly invests in Japanese equities through ETF purchases, while the SNB does not directly invest in Swiss equities.
• Focus on domestic vs. foreign assets: The BOJ focuses on supporting the Japanese equity market, while the SNB holds a diversified portfolio of foreign currency-denominated assets.
• Impact on market liquidity: The BOJ’s ETF purchases have increased market liquidity in Japan, while the SNB’s approach does not directly underwrite liquidity in Swiss stocks.

The Swiss IPO market, on the other hand, is influenced by factors such as Zurich’s status as a financial centre, access to substantial pools of capital, and a strong financial infrastructure and regulatory environment. The introduction of segments like “Sparks” for smaller companies has facilitated a thriving equity listing environment in Switzerland.

The HKMA is another example of a central bank that invests in domestic equities, but its approach also differs from the BOJ. The HKMA Exchange Fund invests in Hong Kong equities through its Long-Term Growth Portfolio (LTGP), which aims to achieve higher returns while ensuring liquidity.

These domestic equity investments have positively impacted the Hong Kong equity market, with some studies suggesting that they have improved market stability and reduced risk premiums. However, the HKMA’s approach is more focused on achieving long-term returns and maintaining financial stability, rather than directly supporting the equity market through large-scale purchases like the BOJ.

Key similarities and differences between the HKMA and BOJ approaches include:

• Both invest in domestic equities: The HKMA invests in Hong Kong equities through its LTGP, while the BOJ invests in Japanese equities through its ETF purchasing program.
• Different investment objectives: The BOJ’s ETF purchases are primarily aimed at supporting the Japanese equity market and achieving monetary policy objectives, while the HKMA’s investments are focused on achieving long-term returns and maintaining financial stability.
• Scale of investment: The BOJ’s ETF purchases are much larger in scale than the HKMA’s investments in domestic equities.

Overall, the HKMA’s approach to investing in domestic equities is more conservative and focused on long-term returns, compared to the BOJ’s more aggressive and market-supportive approach.

Singapore’s EQDP Approach

Between 2010 and now, the MAS has mobilised capital from its official foreign reserves (OFR) and channelled it into strategic initiatives. For example, in 2022, MAS transferred S$75 billion of excess OFR to GIC, Singapore’s sovereign wealth fund. In 2018, MAS allocated US$5 billion to its private markets program to support private equity and infrastructure managers in Singapore.

The MAS Act empowers the authority to establish agencies and offices outside Singapore to carry out its business. MAS has demonstrated its ability to allocate significant funds to strategic priorities and has a track record of deploying substantial resources to support key programs.

Singapore could consider establishing a market support fund overseen by MAS. This fund could allocate a portion of reserves to support the equity market, enhance liquidity, attract sustainable capital flows, mitigate risks of economic coercion, support high-growth sectors, strengthen retail participation, and improve overall market liquidity through strategic investments.

The new S$5 billion EQDP and tax incentives are intended to revive its equity market and IPO pipeline. While these measures address critical issues, analysts caution that structural challenges persist, and their long-term impact remains uncertain. Briefly, the key measures and potential benefits are:

1. EQDP Liquidity Boost: MAS will co-invest with fund managers to target mid/small-cap SGX-listed stocks, and offer tax exemptions to incentivize domestic capital flows.
2. IPO Incentives: 20% corporate tax rebate for primary listings (10% for secondary), and streamlined 6-8 week IPO timelines.
3. Fund Manager Engagement: 5% concessionary tax rate for newly listed fund managers, and enhanced Global Investor Programme (GIP) mandates to invest S$50M in Singapore-listed stocks.

But there are limitations and challenges to the new scheme:

• Tax rebate caps may lack appeal for large-cap firms.
• Mandatory profit-sharing for the 5% tax rate could strain fund manager margins.
• ~30% allocation to Singapore equities may deter global funds amid low market sentiment.
• Persistent liquidity gaps for mid/small caps likely to remain unresolved.

Singapore’s approach relies on public and private-sector partnerships, unlike direct central bank equity interventions. This avoids market distortions but relies heavily on fund manager participation. Nevertheless, they are a foundation for incremental improvements.

But they arguably fall short of fundamentally reversing the Singapore equity market’s past and current challenges: IPO pipeline, retail participation, global sentiment, etc. Whether the EQDP is sufficient for a sustained revival is subject to time and additional interventions, particularly in enhancing retail participation and cross-border collaboration to complement these initial steps.

BOJ, HKMA and SNB Insights for Singapore

HKMA, SNB, and BOJ employ distinct strategies for domestic equity investments, dividend reinvestment, and market facilitation. MAS can draw insights from these approaches while tailoring them to local conditions.

• HKMA: Invests 25% of its Exchange Fund in equities, using dividends to fund strategic initiatives. Maintains high liquidity buffers to stabilize markets.
• SNB: Allocates ~20% of foreign reserves to passively track global equity indices, excluding unethical companies. Focuses on diversification rather than active stock-picking.
• BOJ: Dominates the Japanese ETF market, owning ~70% of the market. Its large-scale purchases suppress volatility but distort price discovery.

Dividend reinvestment approaches of HKMA, SNB and BOJ.

MAS can draw valuable lessons from these central banks to refine its equity strategy. Adopting a passive, index-tracking approach — similar to the SNB — would help avoid market distortions while boosting liquidity. Similarly, limiting equity exposure to 15–20% of reserves would prevent the dominance seen in the Bank of Japan’s (BOJ) ETF-heavy model.

Dividends could be reinvested into targeted sectors like tech and green energy, aligning with national priorities. To deepen market participation, MAS could develop retail investor platforms akin to the HKMA’s Dual Counter Model, while maintaining robust liquidity reserves to stabilise markets during geopolitical shocks.

Additionally, excluding sectors that conflict with national values, such as tobacco, would mirror SNB’s ethical screening. While MAS currently lacks a direct equity intervention program, a hybrid approach — combining passive indexing with sector-specific dividend reinvestment—could enhance Singapore’s equity capital market ecosystem without compromising monetary stability.

Optimising Market Liquidity

Singapore’s equity market lags global peers like Hong Kong and Japan, with a market cap of just ~S$800 billion. However, insights from central bank practices worldwide can inform a structured approach to bolstering long-term market liquidity.

Singapore’s market as of Q1 2025 is much smaller than Hong Kong’s or Japan’s, so avoiding distortions like the Bank of Japan’s 7% equity market share is crucial. Global benchmarks offer guidance – the HKMA allocates 25% of its reserves to equities, while the SNB holds 20% in a passive global portfolio.

New initiatives like the EQDP and tax while a step in the right direction could have a limited impact, suggesting the need for a more comprehensive solution. A new agency or entity—  modelled after the HKMA Exchange Fund or Thailand’s state-controlled Vayupak Fund — to promote and sustain Singapore’s equity market is well within the remit of the MAS Act.

Allocation framework

To enhance Singapore’s equity market depth, the recommended approach is a structured allocation framework. This includes an equity exposure of 5-10% of MAS reserves, aligned with the SNB’s diversification strategy, and a market cap target of 1.5-2.5% of total SGX market cap to avoid BOJ-style market dominance.

Additionally, reinvesting 50-70% of dividends into liquidity buffers, similar to the HKMA’s approach, ensures stability and flexibility. The proposed deployment phase involves allocating S$10-15 billion over 5 years, striking a balance between market impact and fiscal prudence.This fiscal drag — phasing deployment over 5 years — aligns with MAS’s conservative reserve management principles.

This implementation strategy consists of several key components. Allocating S$8-10 billion to passive indexing, tracking the STI and mid-cap indices, with individual stock holdings limited to ≤2%.

This approach provides broad market exposure while minimizing concentration risk. Furthermore, directing S$3-5 billion to high-growth sectors (i.e. green tech, semiconductor, digital infrastructure) can boost IPO appeal and support innovative industries.

A liquidity backstop of S$2-4 billion will be reserved for discretionary use during crises, ensuring that the market remains stable and resilient. Finally, reinvest 60% of dividends into retail investor incentives (e.g. fee waivers, fractional shares), broadening participation and promoting a more vibrant equity market.

This structured approach — combining passive indexing, sectoral targeting, and liquidity buffers — aims to enhance Singapore’s equity market depth while minimizing reserve exposure. For context, HKMA’s 2024 equity gains (HK$21.8B) suggest Singapore could achieve annual returns of 4–6% with similar execution, reinforcing long-run liquidity sustainably.

This also addresses the issue of sovereign backing for Singapore’s securities market, which Temasek Holdings, GIC, and the CPF Investment Board have not pursued. Instead, it allows the public sector to engage with the equity capital markets ecosystem in a strategic and sustainable way, promoting long-term growth and stability.

Economic Trusteeship

Mahatma Gandhi’s concept of trusteeship offers a compelling reimagining of economic organization that resonates powerfully with modern equity capital markets. His vision sought to transcend the flaws of both capitalism and communism while preserving their strengths.

In Bhikhu Parekh’s “Gandhi: A Very Short Introduction”,Gandhi critiqued capitalism’s core tenet of private property, arguing that human talents and natural resources are inherently social assets. While capitalism fostered innovation, it also bred greed, exploitation, and social divisions. Yet Gandhi found communism equally troubling – its state coercion and dependence on violence made it no better.

His solution, trusteeship, proposed a middle path. Wealthy individuals would retain assets but act as trustees, managing resources for society’s benefit. Business owners would work with employees, earn profits ethically, live modestly, and reinvest excess for social good.

Today’s public equity markets embody many trusteeship principles. When companies go public, founders effectively declare their enterprise will serve a broader community. This creates an elegant chain of trusteeship – pension funds, endowments, and mutual funds enable broad public participation in wealth creation.

Modern corporate governance further reflects trusteeship ideals through transparency, oversight, and stakeholder accountability. The rise of ESG investing particularly echoes Gandhi’s vision, as investors use economic power to advance social good.

While Gandhi could not have foreseen today’s financial complexity, public equity markets have evolved to fulfil his dream – private enterprise serving social purpose while preserving individual initiative. This aligns closely with Gandhi’s goals for an economic system transcending the limitations of pure capitalism and state socialism.

As the trustee of Singapore’s equity capital market commons, the MAS has a critical role to play in promoting Singapore’s economic sovereignty and fostering a vibrant ecosystem for entrepreneurs and enterprises.

To boost Singapore’s finance centre, the MAS should establish an agency, such as Equities Singapore International, to promote a competitive equity capital market, similar to how the Ministry of Trade and Industry has set up boards like the EDB and Enterprise Singapore to drive the enterprise ecosystem and attract foreign investment.

This responsibility entails not only implementing policies and regulations but also ensuring that the market operates in a fair, transparent, and efficient manner. By doing so, the MAS can help create a compelling environment that attracts investment, talent, and innovation, ultimately contributing to the long-term growth, prosperity and sovereignty of Singapore.