Singapore’s Financial Fortress: Institutionalising Market Reforms to Anchor Global Capital

In a world shaped by U.S.-China rivalries, regulatory changes in Hong Kong, and Japan’s stimulus adjustments, Singapore stands out as a pillar of financial and geopolitical stability. Recent initiatives aim to revitalize its capital markets and establish the city-state as a financial fortress in an increasingly fragmented landscape.

A June 2025 report from Morgan Stanley forecasts that Singapore’s stock market capitalization could surpass US$1 trillion by 2030. However, it currently trails behind regional competitors like Hong Kong in liquidity and listings, with an average daily trading value of about S$1.2 billion compared to Hong Kong’s approximately US$17 billion.

As of January 2025, Singapore’s total stock market capitalization was around US$644.8 billion, while Hong Kong’s reached about US$5.02 trillion by February 2025, highlighting that Hong Kong’s market is roughly 7.8 times larger.

To foster growth, the Monetary Authority of Singapore (MAS) launched the Equity Market Development Programme (EQDP) in February 2025, committing S$5 billion to boost liquidity, particularly in small and mid-cap stocks, and to enhance the fund management ecosystem.

For Singapore to solidify its position as Asia’s premier financial hub and a geopolitical lynchpin, the EQDP should be institutionalized as Equities Singapore International (ESI), a statutory agency under the Ministry of Finance (MOF).

Building on legal precedents from the Economic Development Board (EDB) and Enterprise Singapore (EnterpriseSG), ESI plans to anchor capital by investing in two exchange-traded funds (ETFs): the ST Large and Mid-Cap Index ETF and the ST Small Cap ETF. This strategy leverages the FTSE Straits Times Index Series.

This initiative would involve partnerships with foreign sovereign wealth funds, pension funds, and local banks such as DBS, OCBC, and UOB. By reinvesting ETF returns to create a sustainable cycle of capital flow and leveraging Singapore Depository Receipts (SDRs) to enhance high-quality securities and secondary listings, ESI can transform the Singapore Exchange (SGX) into a global powerhouse.

This strategy aligns with Morgan Stanley’s optimistic outlook. It further reinforces Singapore’s neutral position in a world that is increasingly beset by volatility, uncertainty, complexity and ambiguity (VUCA).

Geopolitical Stakes: Singapore’s Strategic Ascendancy

Asia’s financial markets resemble a geopolitical chessboard, with shifting dynamics influencing investment flows. Since 2020, Hong Kong’s IPO volumes plummeted by 30% due to China’s regulatory crackdowns, causing the Hang Seng Index to lag behind global benchmarks by 10% annually. Though mid-2025 is set to see a turnaround of this, with a resurgent IPO market.

Meanwhile, Tokyo faces significant challenges following the conclusion of the Bank of Japan’s (BOJ)  ¥36 trillion ETF program in 2024. This resulted in 15% spikes in market volatility amid changing monetary policies. In contrast, Singapore, characterized by its rule of law, neutral diplomacy, and robust governance, is well-positioned to capture redirected capital flows.

Morgan Stanley highlights Singapore as a “safe haven“, projecting a 3% annual GDP growth through 2030. This growth is anticipated to stem from productivity gains and advancements in high-tech sectors, including AI, autonomous vehicles, and green technology.

Such developments could elevate Singapore’s stock market capitalization beyond the US$1 trillion mark by the decade’s end. This trajectory positions Singapore to surpass Southeast Asian peers like Jakarta and Bangkok, capitalising on its stable political environment and strategic location.

However, the Singapore Exchange (SGX) equities franchise has faced significant challenges since 2013, including low retail participation (~15% of trading volume), a limited number of quality listings (with just 12% of firms achieving a return on equity greater than 8%), and concentrated liquidity (80% of average daily trading volume in Straits Times Index stocks).

These factors threaten Singapore’s competitive edge. The EQDP serves as a strategic countermeasure to these challenges. Maybank Research projects a potential 19-fold increase in liquidity for small and mid-cap (SMID) stocks, with the MSCI Singapore Index achieving a 13% year-to-date return as of May 2025, outpacing the MSCI All-Country World Index’s 6%.

Notable stocks such as ComfortDelGro (benefiting from acquisition-driven growth), iFAST (expanding through AI-driven fintech), and ParkwayLife REIT (capitalising on healthcare yields) are early beneficiaries of this trend, with Macquarie estimating a 3-4% uplift in average daily trading volume.

Morgan Stanley’s report highlights iFAST’s AI wealth platforms and ParkwayLife REIT’s healthcare expansion as key growth drivers, projecting a 10% upside for these SMID stocks by 2027.

Institutionalising the EQDP as the ESI, funded by Singapore’s Official Foreign Reserves (OFR) of S$466 billion as of December 2024, would demonstrate a resolute commitment to harnessing the nation’s financial prowess. This initiative could serve as a domestic capital anchor, attract global capital, and align with Morgan Stanley’s forecast of doubling market capitalization by 2030.

Legal Precedent: EDB and EnterpriseSG as Blueprints

Singapore’s statutory agency framework offers a solid legal foundation for the establishment of ESI. The Economic Development Board (EDB) was created on August 1, 1961, through the Economic Development Board Ordinance (Bill No. 140/1961), which was introduced by then-Finance Minister Goh Keng Swee on April 26, 1961, and passed on May 24, 1961.

This initiative was a response to the 1961 UN industrialization study conducted by Dutch economist Albert Winsemius, replacing the underfunded Singapore Industrial Promotion Board (SIPB), which had been established in 1957 with a budget of S$1 million but struggled due to limited capital and transparency issues.

The EDB Ordinance empowered the agency to grant tax incentives, develop industrial estates such as Jurong, and attract foreign direct investment (FDI). By 1962, the EDB had secured a S$40 million grant to entice investors like Mitsubishi and Philips, which catalysed Singapore’s industrial boom. By 1970, the EDB’s efforts had attracted S$1.5 billion in FDI, resulting in the creation of 50,000 jobs.

Similarly, Enterprise Singapore (EnterpriseSG) was established on April 1, 2018, through the Enterprise Singapore Board Bill (Bill No. 5/2018), which was passed on February 5, 2018. This new agency was formed by merging International Enterprise Singapore (IE) and SPRING Singapore, creating a unified board under the Ministry of Trade and Industry (MTI).

This consolidation streamlined support for small and medium-sized enterprises (SMEs), innovation, and global outreach, significantly bolstering Singapore’s startup ecosystem and enhancing its status as a trading hub. By 2024, EnterpriseSG had assisted 1,200 SMEs in their international expansion efforts, generating S$15 billion in overseas revenue.

These precedents—the EDB’s 1961 bill for industrialization and EnterpriseSG’s 2018 bill for SME growth—demonstrate Singapore’s legislative agility in driving economic transformation. An ESI Bill in 2026 would empower ESI to manage the EQDP’s S$5 billion, administer tax incentives (including the S$40 billion COVID-19 drawdown in 2020), and ensure fiscal discipline.

ESI’s governance structure could mirror that of the EDB, incorporating private-sector and international representation to ensure transparency and enhance global credibility.

Adapting the BOJ ETF Model: A Safe Harbor Strategy

The BOJ’s ETF program (2010–2024), investing ¥36 trillion (~US$250 billion) in Nikkei 225 and TOPIX ETFs, held ~7% of Japan’s market, significantly boosting liquidity (BOJ, 2010–2024). Singapore’s smaller market requires a tailored approach, but the principle—state-backed investment to signal confidence—resonates.

ESI would anchor two proposed ETFs:

• ST Large and Mid-Cap Index ETF: Tracking the STI and mid-cap firms (e.g., 40% financials, 30% real estate, 20% industrials), covering blue-chips like DBS and growth stocks like ComfortDelGro.
• ST Small Cap ETF: Targeting small-caps (e.g., 25% fintech, 20% healthcare, 20% consumer goods), spotlighting iFAST.

ESI would co-invest alongside foreign sovereign wealth funds (such as Norway’s Government Pension Fund Global and Abu Dhabi’s Abu Dhabi Investment Authority), pension funds (like Canada’s Canada Pension Plan Investment Board), and local banks including DBS, OCBC, and UOB.

This segment of investors are attracted to Singapore’s stable equities, which offer annualised yields of approximately 5-7%. For instance, by allocating S$2 billion from the EQDP, matched by S$1 billion from foreign funds and S$500 million from local banks, a total pool of S$3.5 billion could be created, targeting a small part of the Singapore’s stock market capitalisation.

Managed with independent oversight, the ETFs could aim for a commitment of S$500 million to S$750 million to SGX-listed ETFs, signalling local banks’ alignment with ESI’s vision. Returns from the ETFs would be reinvested, with 50% directed back into the ETFs to maintain liquidity and the remaining 50% allocated to EQDP initiatives.

These initiatives would include active SMID funds, research grants, investor education, and the promotion of Singapore Depository Receipts (SDRs). This strategy would establish a sustainable cycle of capital flow insulation, buffering the equities market from global volatility while supporting objectives such as increasing analyst coverage and raising retail investor participation in equity trading.

SDRs: Enhancing High-Quality Securities and Secondary Listings

To tackle Singapore’s limited supply of high-quality securities, ESI should promote SDRs. These financial instruments represent shares of foreign companies listed on SGX without the need for direct compliance with local listing requirements.

SDRs enable investors to trade foreign equities in Singapore dollars during local trading hours, significantly enhancing accessibility. For instance, SGX’s SDRs for Thai companies, such as Thai Beverage, have seen trading volumes increase by approximately 15% for select stocks since 2020.

SDRs are a crucial reform for attracting high-tech firms, particularly in sectors like AI and autonomous vehicles. ESI could expand the offerings of SDRs to attract high-growth companies from ASEAN, India, and beyond, leveraging Singapore’s status as a neutral financial hub.

By streamlining the SDR issuance process—reducing setup costs by 20% through ESI subsidies and providing 10% tax rebates for SDR-linked secondary listings—ESI would appeal to companies such as Indonesia’s GoTo, India’s Zomato, and Malaysia’s Grab, which are looking for diversified investor bases without the full burdens of SGX listing requirements.

SDRs can serve as a pathway to secondary listings, allowing firms to become familiar with Singapore’s equity capital market  ecosystem. Potentially, this could lead to primary listings. This can serve to attract more foreign listings, particularly from AI-driven technology firms.

This strategy directly addresses Singapore’s shortfall in quality equity supply; only about 12% of Singapore-listed firms meet high return on equity (ROE) thresholds. By curating SDRs for companies with strong fundamentals (e.g., ROE greater than 10%), ESI would enhance market credibility, thereby boosting liquidity and investor confidence.

 To further enhance the appeal of SDRs, ESI could collaborate with regional exchanges such as Bursa Malaysia or the National Stock Exchange of India, creating SDR frameworks for cross-border listings and further integrating ASEAN’s financial markets.

Economic and Social Impacts: A Multiplier Effect

Institutionalising the EQDP through the ESI can yield substantial economic benefits across various sectors. Firstly, increased liquidity in Singapore’s securities market has the potential to create jobs in financial services, encompassing areas such as wealth management, fintech, and market analysis.

Secondly, aiming for a 20% share of trading volume through increased retail participation would democratize wealth creation, aligning with Singapore’s inclusive growth agenda. Thirdly, the introduction of SDRs and ETFs can attract more international capital, further entrenching  Singapore’s finance centre.

Additionally, ESI’s focus on high-tech sectors, including artificial intelligence (AI) and autonomous vehicles, aligns with the city-state’s Smart Nation initiative, fostering innovation and increasing investment in research and development.

Foreign small and medium-sized enterprises (SMEs) listed on growth boards such as London’s AIM, Aquis, Nasdaq First North, Euronext Growth in Europe, or the Tokyo Stock Exchange’s Growth Market can utilize SDRs as a cost-effective entry point into Asian capital markets, with support from Enterprise Singapore. This strategy not only enhances their growth prospects but also contributes to a more vibrant economic landscape.

Stock market delistings are a concern for any country. The socioeconomic impact is evident; as Singapore’s stock market contracted from 2015 to 2024, wealth inequality — not income inequality — surged. While there is no direct causal link, annual delistings consistently outpaced new listings, leading to reduced market liquidity and fewer investment opportunities for ordinary investor.

According to the UBS Global Wealth Report 2024, Singapore’s wealth inequality surged by almost 30% from 2008 to 2023, with the Gini coefficient for wealth reaching 70 in 2023—up from 57 in 2008. This increase is the highest among countries tracked by UBS in that period. Most of this rise occurred after 2015, reflecting a continued and pronounced trend.

Singapore’s wealth inequality surpasses other Asia-Pacific nations, including Indonesia, Hong Kong, Taiwan, and Mainland China. The number of millionaires in Singapore has also grown rapidly, with most of the wealth gains concentrated among the upper-income brackets.

While income inequality (measured by the Gini coefficient for income) remained relatively stable or even declined slightly after accounting for government transfers and taxes—reaching its lowest level since 2000 in 2024—the gap in average incomes between the top and bottom deciles has widened. For example, the difference in average income between the top and bottom 10% of households grew from $11,538 in 2014 to $14,857 in 2024

Wealth gains  become concentrated among upper-income brackets, creating a stark economic divide. The market contraction effectively narrowed pathways for wealth creation, while privatisation processes increasingly concentrate investment opportunities among large shareholders, pushing retail investors toward riskier alternatives.

Although no direct causal link exists, the structural connection between market contraction and wealth concentration is clear. This trend reflects a systemic shift toward greater exclusivity in financial access. As public markets shrink, wealth accumulation becomes more restricted, favouring those with existing capital and connections. This situation underscores how market mechanisms can significantly influence economic opportunity and wealth distribution.

Global Business and Geopolitical Dividends

Pursuing the institutionalisation of market reforms and creating an organisation to promote Singapore’s capital markets and serve as a domestic capital anchor offers several key benefits. These are:

• Liquidity for Global Investors: ETFs and SDRs address SGX’s 80% ADTV concentration in STI stocks, boosting SMID and foreign-linked liquidity, narrowing the gap with Hong Kong.
• Hub for MNCs and Private Equity: ESI’s ETF and SDR strategies, plus streamlined listings and tax rebates, draw Southeast Asian IPOs and secondary listings, leveraging ASEAN’s ~5% GDP growth (2025 projection). MNCs like Grab and private equity firms gain listing and exit opportunities, positioning SGX as Southeast Asia’s financial gateway for AI and tech firms.
• Geopolitical Neutrality: Co-investment with diverse global funds and local banks, plus SDRs for regional firms, reinforces Singapore’s neutrality, countering Hong Kong’s China-centric perception. The Global Investor Programme’s S$50 million equity requirement amplifies appeal, per Morgan Stanley’s “safe haven” label.
• Regional Leadership: ESI strengthens Singapore’s diplomatic clout as ASEAN’s financial hub, balancing U.S.-China dynamics and fostering integration through cross-border SDR frameworks.

Critics may contend that ESI could crowd out private capital or disproportionately favour Western investors. However, transparent allocation processes, a diverse range of co-investors—including funds from ASEAN and China—and a 5% market cap cap are designed to mitigate any potential market distortions.

Additionally, scrutiny of the OFR can be addressed through annual reports that mirror the governance model of the Singapore’s sovereign fund GIC. Given SGX’s relatively small market size, reforms are necessary to maximise impact, including easing listing criteria, enhancing retail engagement through digital platforms, and promoting tech-focused SDRs. An inclusive outreach strategy for SDRs targeting China, India, and ASEAN will further ensure neutrality.

Implementation: A Global Blueprint

There is a blueprint for implementing such changes

• Legislation: The establishment of ESI should be enacted through a 2026 ESI Bill, modelled on the Economic Development Board’s (EDB) 1961 bill and Enterprise Singapore’s 2018 bill. This will require securing Presidential approval for S$5 billion in OFR transfers. Engaging parliamentarians early in the process will be crucial to ensure bipartisan support.
• ETF Launch: A total of S$3.5 billion can be deployed, with S$1 billion from foreign funds and S$0.5 billion from local banks, targeting a 5% market cap by 2028/2029. Partnering with BlackRock will provide the necessary expertise in ETF management.
• SDR Expansion: An allocation of S$500 million will be dedicated to promoting 10 to 15 new SDRs by 2028, aiming for an additional S$10 billion in market capitalization, with a focus on AI and technology firms. Collaborating with regional exchanges will facilitate the creation of cross-border frameworks.
• Governance: A board comprising representatives from global entities (e.g., Norway’s Government Pension Fund Global), local institutions (e.g., DBS), and academic experts will be established to monitor average daily trading volume (ADTV), initial public offerings (IPOs), and analyst coverage.
• Global Summit: A G20 financial summit will be hosted in 2026 to officially launch ESI, inviting regulators, multinational corporations (MNCs), and investors to showcase Singapore’s tech-driven equity market.
• Reinvestment Cycle: ETF returns will be reinvested, with 50% allocated back into the ETFs to sustain liquidity and the remaining 50% directed towards funding research, education, and SDR promotion.
• Transparency: Semi-annual reports will be published, and public consultations will be conducted to build global trust in the initiative.

Institutionalizing the EQDP as ESI, drawing on the precedents set by the EDB and Enterprise Singapore, and anchoring ETFs with foreign funds and local banks such as DBS, OCBC, and UOB, Singapore can transform its equity market into a stable and liquid safe haven. By expanding SDR offerings and reinvesting returns to insulate capital flows, Singapore’s capital markets can operate as a global financial centre operating on transparent, principled neutrality.

Adapting the BOJ model and leveraging Morgan Stanley’s projection of a doubled market capitalization by 2030—driven by 3% GDP growth, AI advancements, and equity reforms—ESI can enhance liquidity, attract MNCs, and reinforce Singapore’s neutrality. It is crucial for Singapore’s public sector to engage global investors, MNCs, and ASEAN regulators to support ESI in shaping the financial future of Asia. Singapore’s financial fortress is ready for business.