This is a research / analytical report on the Financial Markets in Singapore

1. Financial Markets – Singapore
金融市場- 新加坡
“Singapore’s financial sector has proven resilient in the face of a series of economic shocks
and asset price declines in the past few years. The local banks and insurance companies are
profitable and well capitalized. Stress test results indicate that Singapore’s systemically
important banks and insurance companies could withstand further significant shocks…”1
1
IMF Country Report No. 04/104

2. Singapore in a Snapshot2
Source: http://www.fnetravel.com
Population 4,839,400
Area 704 sq kms
Official Language Malay, Chinese, Tamil & English
Unit of Currency Singaporean Dollar (SGD)
Legislature Parliament
GDP $240 billion
GDP Growth 1.2%
Inflation 4.3%
Exports $ 235.8 billion
2
http://www.singstat.gov.sg

3. Financial System
The Monetary Authority of Singapore (MAS)3 is Singapore’s Central Bank. Like the Central
Banks of any other country, the major responsibility of MAS is maintenance of the stability
of the national currency (Singaporean Dollar), controlling the interest rates of subsidized
loans and supervise that banks and other financial institutes do not resort to reckless or
fraudulent behavior. It also manages Singapore’s official foreign reserves and is responsible
for monetary policy supervision of financial markets in Singapore. MAS was established in
1970 and it became operational on January 1, 1971. On a macro-economical front,
economical development and the financial systems of both Singapore and economies with
which Singapore has a close trade link is monitored by MAS.
Singapore has around 580 local and foreign financial institutes. The products that they offer
range trade financing, loan syndication, foreign exchange trading to securities trading, fund
management and insurance service. The financial sector is dominated by commercial banks,
which account for about 86% of the total financial sector assets.
Despite a string of economic downturns and asset price declines, Singapore’s financial sector
which is dominated by the banking sector has remained strong. Singapore’s local banks are
very profitable and well capitalized, and they constitute 55 percent of the domestic banking
assets. Though these banks follow a conservative approach in their management practices,
they are highly liquid and adequately provisioned for non-performing asset exposure.
The World Economic Forum Global Competitiveness Report in 2004 ranked Singapore as
one of the most sophisticated financial markets in the world4. The Singapore Government
has also played its role by introducing a number of measures to diversify and deepen its
Financial Markets. The government has actively promoted development of capital markets to
strengthen the country’s position as a regional financial centre and thus reduce the reliance
on bank for financing. Although the Capital Markets have grown swiftly, the relatively small
size of the economy and the competition from other regional financial centers pose a
challenge to its growth prospects. With several countries consolidating their foreign
exchange and derivatives business in the Asian Time Zone in Singapore, it has maintained its
position as a global treasury center.
3
http://www.seacen.org
4
http://www.sovereignsociety.com

4. It was in the late 60s that the Singapore government seriously ventured to develop Singapore
as a financial centre.5 A lot of special initiatives and subsidies were offered to various foreign
financial institutes to set up their centers in Singapore. As a result, today, Singapore is one of
the major forex trading centres in the world. Singapore has a strong domestic economy –
since its independence in 1965, Singapore had done very well and had achieved double digit
economic growth rates in 1960s and early 1970s. Also Singapore Dollar is considered to be a
highly stable currency. It is backed by various currencies like the US dollars, Japanese Yen as
well as the gold holdings.
Money and Bond Market6
The money market in Singapore is dominated by the interbank market in the foreign
currency and highly liquid. The interbank market comprises of short-term interbank
deposits and lending in foreign currency. Due to the excess funds in the Singapore economy,
the Asian Dollar Market is a vital center for mobilizing interbank funds globally.
Source: http://www.mas.gov.sg/resource/eco_research/surveys/TSChart7.gif
The above graph shows the number of treasury dealers various market instruments over the
year over the last decade. We can see that Forex has always been a major contributor to the
Singapore economy.
5
Pg 3, Financial Markets and institutions in Singapore – Tan Chwee Huat
6
Pg 37, IMF Country Report No. 04/104

5. The SGS (Singapore Government Securities) market has continued to grow thanks to the
various steps taken by the authorities with this regards. In Singapore, the corporate bonds
comprise of the Asian dollar bond market and the Singapore Dollar corporate bond market.
Majority of the outstanding Asian Dollar Bonds are commercial papers and fixed rate notes
with short term maturity. These have also been dominant in the Singapore dollar corporate
bond market. The secondary bond market in Singapore is considerably illiquid as majority of
the bonds are held until maturity.
Equity and Derivatives Market7
The Equity and Derivative market in Singapore is very well developed. The SGX (Singapore
Exchange Ltd) was a result of the 1999 merger of the Stock Exchange of Singapore and the
Singapore International Monetary Exchange. Equities are traded on its Securities Trading
Division (SGX-ST) and derivatives (including a wide range of international futures and
options) on its Derivatives Trading Division (SGX-DT).
Source: http://www.sgx.com
The above figure shows the transaction details on the Equity market at SGX over the last 3
months. It shows a slight decrease in the total turnover and the volumes of trade in the
month of June, while the market capitalization has increased steadily.
SGX also has got linkages with a number of international exchanges, including a co-trading
linkage with the Australian Stock Exchange, a mutual offset system linkage with the Chicago
Mercantile Exchange, and a joint venture with the American Stock Exchange for the trading
of exchange traded funds.
7
Pg 38, IMF Country Report No. 04/104

6. Source: http://www.sgx.com
The above chart is a comparative study of the various derivative instruments and the
volumes since 1984 to 2008. The futures market has seen a steady growth, while the options
has seen a 50% decline in the year 2008 due to the current financial crisis. Due to the
volatility in the current global markets and the launch of a variety of new products, the SGX-
DT has been pretty robust in 2009.

7. Foreign Exchange8
The foreign Exchange market in Singapore is the 4th largest in the world. It has benefited a
lot due to its geographic location and the time zone advantage that it gets over the other
international markets and also the presence of a huge number of foreign banking institutes
and multinationals. G3 currencies continue to dominate the foreign exchange trading in
Singapore. 90% of the total transactions are through Swaps and Spot transactions and the
rest is covered by the forwards, futures and options contract.
Source: http://research.stlouisfed.org
The above graph shows the progress of the Singapore Dollar over the US Dollar over the last
couple of decades. 2008 and 2009 has seen a steady appreciation in SGD over the USD in
wake of the crisis and the steady depreciation of the US Dollar.
Outlook
8
Pg 38, IMF Country Report No. 04/104

8. Singapore is a trade oriented economy with its major trade partners being the United States.
Considering the economic turmoil that the whole world in general and the USA in particular
is going through, the ripple effects were felt in Singapore economy to a very large extend. As
a policy, Singapore should look to diversify and move away from just being a trading port to
a more matured and an independent economy. Though Singapore is politically stable, the
political instability in its neighboring countries like Indonesia is a cause of worry due to the
looming prospects of refugees coming in from such countries.
According to me, one of the best policies that the Singapore government had adapted were
the “open-door” policy that it extended to the foreign investors. This was really crucial to the
exponential growth that Singapore has witnessed over the past decades and has also made it
one of the leading forex traders in the world. Singapore needs to concentrate more on its
corporate bond structure and other money market instruments as it forms a very important
part of the economy.
To conclude, considering that Independent Singapore is hardly 50 years old, Singapore had
done a fine progress from being a port city to the cosmopolitan city that it is today. Lot of
credit must go to the former Prime Minister Lee Kuan Yew, who was at the helm of affairs
from 1959 to 1990 for 3 decades. Onus lies on Mr Lee Hsien Loong to maintain if not to
exceed the heights and the glory that Singapore has achieved over the past years.