In recent days I've been hearing a number of people express pessimism about the Singapore stock market. Their downbeat view has not so much to do with the level of the Straits Times Index or the rise and fall of share prices, but simply the lack of a critical mass of retail investors. Trading commissions have stabilised around 0.275% or S$25 per trade. Adding value-added services are the only way to grow revenue (check out the feature in the upcoming edition of Pulses).

This argument is certainly not without foundation. In our country of 4.5 million people only 100,000 are active traders, another 500,000 are investors with a handful of stocks in their portfolios that they rarely touch and another 600,000 people have depository accounts that are empty (the account holders probably don't even know they have an account. It would have been opened for them when SingTel listed 14 years ago. They sold the SingTel shares and left the CDP account standing). The stockmarket is seen by many as still too risky, and requiring too much time, expertise and money to be attractive. Consequently, it is people with a lot of time and savings on their hands who are most active: retirees and housewives in their 40s and over.

The Singapore Exchange is trying to encourage greater participation, by treating traders and investors as their own customers, rather than customers of brokers. They have launched a call centre and recently invited the top traders and investors aged 21-35 to the Ministry of Sound for what turned out to be a great night out (disclaimer: I was the emcee).

However, the SGX and others can take heart in the number of young people who are interested in becoming active in the stockmarket, as traders or investors. This morning, the three varsity investment clubs under the I-cube umbrella launched their own online stock market game (I was again the emcee). The I-Cube OCBC Securities Online Stock Challenge 2006 runs for one month and offers cash prizes. Already 2,500 students from the universities, as well as polytechnics and junior colleges signed up to take part. And here's the most interesting part: they are questioning the usefulness of mutual funds.

Mutual funds or unit trusts have been very successful in Singapore. Time-poor people have been happy in the past to put their money into the hands of a fund manager, after paying 5% in upfront sales fees and 1.5% or so in annual management fees. The major banks have acted as distributors, collecting a substantial part of the sales fee. The banks have the retail exposure and the client base to push these products on to. But as one of the guests at the event this morning pointed out to me in conversation, the fees have been under pressure as more people get smart. They question the value proposition of throwing money at a unit trust for such a hefty sales fee when the returns are not necessarily all that much better than the benchmark index.

Young people are increasingly saying: I want to be my own fund manager. I want to do the research myself. I want to be responsible for my decisions. They are willing to risk their own money. Afterall, losing your own money, although bad, is not as bad as someone else losing your money.

Not all these young people are going to stick with stocks. Some will invest in unit trusts for diversification, or simply because they run out of time, patience, or whatever else. But to my mind, saying the retail market in Singapore cannot support the local industry ignores some of these important trends.


Mark Laudi