Sunday, 6 November 2016

Will The Privatisation Wave Happening In Singapore’s Stock Market Hurt Or Help Investors?

The wave of privatisations happening in Singapore’s stock market does not seem to be abating. Many well-known listed companies in Singapore have been delisted in recent years. Here are just a few of the major privatisations that have happened since 2009.
  • Goodpack
  • Cerebos Pacific
  • Asia Pacific Breweries
  • Keppel Land
  • CapitaMalls Asia
  • Neptune Orient Lines
  • Tiger Airways Holdings
  • OSIM
  • SMRT Corporation
Just last week, Super Group Ltd (SGX: S10) received a buyout offer. Super Group has been a recommendation of The Motley Fool Singapore’s premium Stock Advisor Gold service since June 2016.
Partly due to the availability of cheap financing, privatisations and mergers can make sense for the major shareholders of companies involved in deals.
But, is this wave of privatisations a good or bad thing for minority investors in Singapore’s stock market? Here are two perspectives on how we can view the current developments.

The pessimistic view
The general view that I am getting when talking to other investors is that this wave of privatisations is hurting investors as more and more good companies are disappearing from Singapore’s stock market.
The pessimistic view worries that the market may eventually be left with only low-quality companies.

The optimistic view
On the other hand, the recent privatization wave may be good for investors. This is because the Singapore market is generally trading at a lower valuation when compared to its regional peers. This could be due to the slowdown in Singapore’s economic growth and/or the slump in the oil & gas and property markets.
But, the privatisations could help investors realize the full valuation of their investments. Without the privatisations, the valuation of some companies here may very well have continued to stay low for extended periods of time.
Moreover, with more and more privatisations happening, some market participants may feel that investing in Singapore now could give them a better chance of realizing the full value of their investments due to takeover attempts. As a whole, this development may rejuvenate interest in Singapore’s stock market amongst investors.

There are always two sides to a story. With regards to the privatisation wave in Singapore’s market, even though the situation may look bad for investors on the surface, there is still a bright side to the development.
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