Dual listing myth

IT is well known that the Singapore Stock Exchange (SGX) has been in the doldrums for many years. It lacks liquidity and investor interest.

Fewer and fewer companies are seeking to list on the exchange. As a result, SGX-listed stocks trade at lower values compared with their regional counterparts.

In contrast, the Malaysian equity market has been enjoying a decent run with a record number of new listings and has one of the highest price-earnings valuations in the region and even globally.

No wonder a handful of SGX-listed companies are toying with the idea of a dual listing on Bursa Malaysia.

Media reports speculate that Grand Venture Technology Ltd (GVT), which produces components for semiconductor makers and other industries is one such company.

In July, UMS Holdings Ltd, another SGX-listed maker of semiconductor components, said it was considering a second listing in Malaysia. The reasons stated were to widen its investor base, improve the liquidity of its shares and tap additional platforms for fundraising.

Will such dual listings raise the value of the issuer? It is hard to see how.

Technology and liberalisation of trading rules enable investors to buy any stock around the world almost instantaneously and with minimal fees. As such, investors can easily acquire SGX-listed shares of UMS without it being listed on Bursa.

Secondly, arbitrage seekers can and will reduce any price difference.

Arbitrageurs exploit price discrepancies by buying shares where they are undervalued and selling them where they are overvalued, which in turn will bring prices closer together across different exchanges.

A better bet would be for the companies to de-list from SGX and list on Bursa. This would work especially if the company has a large operation in Malaysia, such as UMS.

However, this may be unappealing to the business owner, who may not want to risk putting the entire value of his enterprise into a ringgit-denominated asset, subject to other rules of Malaysia such as taxation.

There is no easy solution.

Perhaps only when SGX becomes more appealing to investors will its stocks begin to show a higher value.