The Shrinking Singapore Broking industry

What is ailing the Singapore broking industry? My comments alongside the Bloomberg article in blue.

Singapore’s shrinking brokerage industry is set to get even smaller as trading restrictions planned by regulators dent profits, according to a body that represents individual brokers.

The average daily value of shares tradedin the city, which slumped 40 percent in the first two months of 2014 from a year earlier, will decline further should rules be implemented that include requiring collateral for some trades and shortening the settlement period, said the Society of Remisiers, which represents dealers who work entirely on commission. Singapore Exchange Ltd. and the Monetary Authority of Singapore proposed the changes after a penny-stock rout in October erased $6.9 billion in market value of three companies over three days.

“More people will leave the industry as they’ll get less business,” Jimmy Ho, president of the Society of Remisiers, said by phone. “Once they cut the settlement period, there will be less speculative trading and it will drag overall volumes.”

The number of stockbrokers in Singapore fell 8.4 percent percent to 3,973 at the end of last year from 4,336 in 2011, according to data from the bourse, as the industry was buffeted by declining trading volumes and commissions as well as competition from online trading platforms. The city’s benchmark Straits Times Index trailed all its major developed-market peers in the past 12 months and slid 1.2 percent this year through yesterday.

Even after Singapore Exchange teamed with Singapore Management University and CIMB Group Holdings Bhd. (CIMB) in April 2012 to provide training programs for the industry, traders’ ranks continued to thin. This year, the bourse partnered with the National Trade Union Congress’s Employment & Employability Institute to bolster interest in the profession.

Comment: SGX made the first boo-boo which killed market velocity, that is making the trading in penny stocks into decimal places. In Malaysia it is still minimum 0.005 sen per bid. Obviously when you staff SGX with more MBAs and legal heads, you are not going to get rules that promote trading. They went by the textbook rule in that the smaller the bids, the bigger the volume. Here is where textbook fails to understand market participants' psychology. In Singapore, there are too many penny stocks, and I mean really pennies ... those under 20 cents. When the bid and offer looks like this 0.033-0.034 it does not make for more attractive trading compared to Malaysia's 0.030-0.035 ... the psychology is that in a single bid traders and punters are already making money and able to cover comm, that makes it "attractive" to big punters or syndicates to move a stock a few bids. In Singapore, you would see huge volumes at every bid and offer thus making it arduous to move stocks. Penny stocks are by nature speculative and you have to make it more conducive for them not make it harder for them to make (and lose) money. Though your propensity to lose money would also shrink in Singapore penny stocks, that is not the aim of punters (minimise losses), its to make the big gains.

Industry Adjustment

“Brokerages are able to cope with fewer dealers because trading volumes are lower,” Society of Remisiers’ Ho said. “That’s a natural adjustment for the industry.”

It will be hard to draw young people, given the high risk and low commissions, said Yeo Aiqi, 28, who left Phillip Securities Pte, the city’s biggest brokerage by clients, in 2011 after working three years there.

“Stockbroking appears to be a sunset industry,” Yeo, who now sells women’s apparel at her online store www.clothingcandy.com, said by e-mail. “Trading volumes are low and commission rates are falling.”

The average value of shares traded on the Singapore bourse tumbled 40 percent to about S$1.06 billion ($836 million) in the first two months of 2014 from S$1.77 billion a year earlier, according to data compiled by Bloomberg. Transactions in Hong Kong fell 11 percent in the same period, while those on Japan’s Topix index increased 17 percent.

Stock Rout

Blumont Group Ltd. (BLUM), Asiasons Capital Ltd. and LionGold Corp. tumbled at least 87 percent over three days in October, prompting the city-state’s central bank and bourse to review its equity market structure. The companies said they didn’t know what precipitated the plunges, which spurred at least a dozen lawsuits from banks and brokers seeking to recover losses on collateral held against margin loans.

SGX introduced circuit breakers last month to minimize volatility in share prices and is seeking feedback from the industry before it implements the collateral and settlement period changes.

While the move is meant to revive investor confidence, it won’t improve the outlook for brokers, said Gabriel Yap, who left the industry in 2009 after 19 years as a trader.

“The casualties of the penny-stock saga are the stockbrokers,” Yap, who now manages his own investment advisory firm, said by phone. “If the clients don’t pay, the dealers or the remisiers will have to cover.”

Shrinking Commissions

To make the profession more appealing, SGX needs to address dwindling volumes to counter the decline in brokerage commission rates, which have fallen to 0.1 percent of the value of shares traded from 1 percent 10 years ago, according to Yap.

“Brokers have nothing exciting to recommend to their clients these days,” Yap said. “Trading was buoyant before I left the industry due to the influx of Chinese listings and now investors are avoiding such companies after a number of them got embroiled in accounting or stock manipulation scandals. SGX promoted the listing of real estate investment trusts in the past decade but interest in them is starting to wane.”

At least 28 Chinese firms on the exchange have been suspended or delisted since 2008. There were 144 China-based firms listed in Singapore at the end of February, according to the exchange. The FTSE Straits Times China Index of 31 mainland stocks sank 7.3 percent in the past 12 months.

Comment: Lack of cowboy-ness in SGX. When you sanitise the markets too much, it becomes boring. Every exchange needs a certain element of cowboy-ness (including markets like S&P500 and Nasdaq) to maintain relevance and interest. They way SGX is headed, you might as well list all boring ETFs and kill off the broking industry. When you shrivel the market into mainly blue chips that move, you institutionalise the entire industry. When the speculative counters do not present trading opportunities, investors and punters will just ignore and shy away. Casinos are there on the pretext that you can make supernormal gains, if that is not present, even casinos will close shop. What SGX has been doing for the past 7 years is like a casino which limits your gains, e.g. if you make S$10,000 then your bets are halved, etc... In protecting the investors, you can somehow err on the side of caution. There is little to justify the big salaries at SGX and the trading fees collected by SGX. They way they clamped down on "cowboy-ness" and the proliferation of REITs are just examples of going the "wrong way" unless what they want is to shrink the industry.

REITs Sink

Singapore REITs had the third-worst return in the Asia-Pacific region in the past 12 months as rising bond yields made the securities less attractive, according to data compiled by Bloomberg. The FTSE Straits Times REIT Index tumbled 13 percent in the period, compared with a 5 percent decline for the benchmark Straits Times Index.

Stockbrokers are competing against online trading platforms for business. Retail investors in Singapore are increasingly using websites and apps to trade shares amid growing use of mobile gadgets, according to a report by researcher Investment Trends.

About 51 percent of the 460,000 brokerage clients in the city traded shares online in the 12 months through September compared with 49 percent a year earlier, according to the report.

On top of imposing minimum collateral requirements on investors and reducing the settlement period for stock transactions to two days from three by 2016, the city-state may also set up an independent listing committee and boost enforcement, SGX and MAS announced on Feb. 8.

Orderly, Transparent

The proposals will help in “promoting orderly trading and responsible investing” and “improving the transparency of market intervention measures,” the central bank and exchange said in a statement at the time.

The Securities Association of Singapore can’t comment on how the proposed changes will affect brokerages pending consultation with its members, Melinda Sam, chief executive officer of the organization that represents trading firms, said by phone. The group will submit its position paper by the May 2 deadline, she said.

Some stockbrokers have given up waiting for an industry revival.

“The risk to reward just doesn’t work out,” Chin Chung Hwa, who quit his job as senior vice president of corporate broking at CIMB Securities Singapore Pte. in December. “I left the industry to join private banking because it’s more stable and clients must put money upfront.”

The Song Remains The Same (NOT)

The internet has changed the playing field of many industries, in the way we produce, network and reach our audience. The internet is a great equaliser, it brings prices down, it makes almost everything cheaper. We get to cut out a lot of the middlemen in transactions.



However, there is one industry that stands out for being most maligned by it, causing the entire business model to shift dramatically. Its like talking pictures being invented and accepted by the masses, have a heart and see how those whose livelihood was connected to silent pictures - what a mind blowing change for them. Then we have the invention and acceptance of television, which totally displaces much of the "influence and attraction" of the radio.


However, even those two scenarios added up cannot be compared to the tumultuous upheaval of the music industry by the internet. Now music is almost a commodity. You'd be hard pressed to find anyone paying anything for music. $1.00 seems to be the norm set by Apple.


Can anyone turn this around? I think not because we now listen to music from our phones and pods and pads, not so much from the hi-fi systems at home. There is Spotify now, a morphed Napster, offering an enormous library most for free.


How does this affect you and me? Well, it will and have affected the livelihood of musicians. Record labels will not try to promote new acts, how to when even Jay Chou sells less than 10,000 for his latest album in Malaysia? Now albums are there not to make money but to promote the artistes for live performances. Don't you ever wonder why suddenly over the last 5 years, we see more and more international artistes at our shores - I mean, last time, they would probably skip Malaysia, now we are an important destination.



It affects the kind of artiste that will get recorded or promoted - American Idols, the established players, no one will go for an untried and untested artiste. It used to be that bands in pubs are great breeding ground for great bands, now even the biggest record labels and producers will stay away from them - so we all lose out as that channel gets crushed.


Ever wonder why there have been so many more of the Il Divos, the 5 Tenors, the 20 Chinese lady classical musicians, the 2Cellos - all are marketed hype of beautiful people that can play well to an audience. If you are below average looking as a musician, fat hopes baby. We will never get our Jose Felicianos, our Stevie Wonders .... 


The Idols, X-Factors, The Voice (and I am sure we will get the future Lung Busters, The Throat, etc.) are ok on their own but if they are the main source of future global musicians, then we are pandering to the lowest common denominator. We will exclude the Lou Reeds, the 10ccs, the Norah Jones, etc.. of the world.


I dread about the kind of musical talent that will come to the fore in the future, all we have will be the Underwoods, the Susan Boyles ... not that these are bad things, these are just interpreters of things - where will we find the new sound (Adele and Rumer are exceptions), where will we discover our Bebel Gilbertos, our Joanna Wang (if not for her father) or Blur?


As musicians, they will always bring this up as fucking up their industry, yes... stomach it or leave it. Know that you might not make tons of money from it, and you better be damn good as a performing live artiste. Its not the same anymore, no point bitching about it, the tide has shifted. You can still make it but the path is very different and you have to play a lot more gigs, grow your audience bit by bit, play larger and larger venue until the record labels deem it as sufficiently "safe" to pick you up.

Kids These Days: Spotify, Radiohead, and the Devaluation of Music

CAL STAMP

The other day I had an epiphany: To the average music consumer, a song is 

worth less than a candy bar. It might last longer, sound sweeter, and offer a 

more meaningful experience, but don't ask us to spend more than $1 on it. In 

fact, we'd prefer you didn't ask us to spend any money at all. That's why we 

loved Napster, that's why we loved Pandora, and that's why we love Spotify.

Early last summer the popular European digital music service Spotify came to 

the United States with much blog buzz and fanfare. Boasting a catalog of over 

15 million songs, Spotify offers free streaming access to its entire library 

through any laptop or mobile device. It's ad supported, but subscribers willing 

to shell out $10 a month can enjoy their playlists without the interruption of 
advertisements. Not a bad deal for music fans. And at first glance, it's not a 

bad deal for musicians either. The artist is paid royalties on a per play basis.
 Everybody wins, right? Not really.

Will Baker

Spotify doesn't pay pennies on the dollar, it pays pennies on the penny. Recently, indie label Projekt Records pulled out of its deal with Spotify, citing a minuscule $0.0013-per-play payout as one reason for bailing. In 2010, The Guardian published an article in which author Sam Leith revealed a rather shocking piece of information: In the space of a few months, Lady Gaga's smash hit "Poker Face" received over 1 million streams. She was compensated to the tune of $167.

Spotify has since countered that claim, saying that the number is misleading and refers to the performance and publishing royalties paid to the collecting agency of the song's Swedish co-writer. But $167 sounds absurdly low no matter how you slice it. Of course, one could argue that Lady Gaga and her team don't need the money. Fans argued the same thing after Metallica sued Napster in 2000. When the conflict is framed as a David-and-

Goliath showdown between mega-rich rock stars and broke college students, 

there's little question who will win the fight for the public's sympathy.

But that's not the battle that's being fought. The real victims here are so 

powerless no one even remembers they exist. When an established band like 
 Radiohead gives away a record for free (as it did with "In Rainbows") it 

increases exposure, which in turn boosts touring and merchandising revenue. 

But the vast majority of bands out there aren't Radiohead. They're small, 

unknown groups with no money or support structure. Sure, they can give away 

their record. But will anyone notice or care? Probably not. Meanwhile, 

Radiohead and Spotify are busy teaching us that, as consumers, we aren't 

responsible for compensating our artists. In fact, we're being conditioned to 

feel inherently entitled to the fruits of their labor. The amount of time and 

money the artist has invested is of little concern. If we listen to something, 

then it is ours. It's a perspective similar to that of a small child who sees a 

new toy and shouts, "MINE!" He's always been given everything he wants. 

Why should this be any different?

 

Many of us like to celebrate the apparent demise of the big, bad record 

companies as a justification for this behavior. We like to say that their 

business model is outdated and now they're paying the price. Good riddance, 

we say. Greedy bastards! But guess what? We've been singing that tune for 

over a decade, and those greedy record companies are still here. Sure, they're 
wounded. So they consolidate. They drop artists from their roster. 
They stop developing young acts. They stop signing new bands. They stop 
taking risks on anything different or exciting. They dump all their money into 
the tiny handful of top-grossing acts that keep the label afloat, like Lady Gaga
 and Metallica. When they do sign anyone, they sign safe bets like 
American Idol contestants and YouTube child sensations.

The unknown bands are left floundering in cyberspace, hoping in vain that they 

can amass enough Facebook fans to entice industry folk and get noticed. If 

they're smart, they tour. But touring is expensive, and since their records aren't
 selling well at gigs, they have trouble keeping the van gassed up. Unless 
they've been blessed with an angel investor or rich parents, life on the road 
isn't financially sustainable. So they figure the Internet is the way to go. Them 
and about 15 million others. They try to get some blog attention. Maybe
 Pitchfork will pick them up as the flavor of the month. But then what? 
I still don't have any  friends who listen to The Weeknd. Bands don't break
 through blogs.

Point is, it's hard out there for the little guys, the unknowns. And let's be 

honest, the trickle-down devaluation of music hasn't been much better for 

audiences than it has for bands. Sure we save a couple dollars, but the culture 

of one-hit-wonders, reality star divas, and the general cycle of crap that gets 

churned out by the pop culture machine has only worsened, thanks to musical 
Reaganomics. They say the customer is always right, but when the customer 

stops valuing the product, why bother investing in its production? Innovation 

dies in favor of the fast, the cheap and the guaranteed.

So pay for your music, boys and girls. Support the good stuff that's out there, 

and skip services like Spotify. We can't afford to live off candy bars forever.

Reasons & Rhymes

So what caused yesterday's slump in most markets? I love it when everyone is asking the same question, and nobody seems to have answer. Its like debating how we know if there is a God for sure. The usual market weakness reasons would not be sufficient to explain the shareper than usual daily losses.

Bloomberg has this to say: "Asian stocks fell, dragging a benchmark regional index lower for a third day this week, on concern U.S. unemployment and efforts by emerging countries to tame inflation will hamper a global economic recovery."

Hmmm, ok Bloomberg, you need to do better than that.The FBM KLCI fell 2.09% or 32.08 points to 1,503.99, the steepest fall since it lost 2.11% on Nov 6, 2008. YTD, the FBM KLCI lost 0.98%. Losers thumped gainers by 750 to 160, while 223 counters traded unchanged. Volume was 2.23 billion shares valued at RM3.13 billion.

Hong Kong’s Hang Seng Index fell 1.97% to 22,708.62, Taiwan’s Taiex lost 1.89% to 8,836.56, South Korea’s Kospi fell 1.81% to 2,008.50 and Singapore’s Straits Times Index lost 1.5% to 3,103.39. However, the Shanghai Composite Index rose 1.59% to 2,818.16 and Australia’s S&P/ASX 200 Index added 0.20% to 4,914.40

Then we go searching for reasons to attach to the picture, some said its the Javanese burning of 3 churches. Hmmm, read closer, no one died, it was an orchestrated thing by a small minority extremist group. Not sufficient reason.

Then there are those who cited China's recent rate raises. Old story man, even Chiuna was the sore thumb yesterday gaining substantially. Fears of other Asian central bankers doing likewise, well, its a maybe but WE ARE COMING from such a low base rate, surely any rate hikes are not sufficient to turn people off - sounds logical but underwhelming.



Then there are the experts who say foreign funds are moving out in droves. Pleeassee la people, institutions do not act as one. Its not like they collude at a monthly meeting and say lets get the hell out on these 3 days. We tend to blame foreign funds when markets are down, in reality, there are always buyers and sellers both local and foreign. There are good and bad fund managers, good and bad investors, local or foreign - its too simplistic to attribute the day's weakness or strength to just one group of people. Its bigger than all of us.

We try to make it "small" by being able to explain things away, but we are belittling the market's predictability and in many ways, the market has a mind of its own which is difficult to fathom if you look at it on a day to day basis.

The OZ markets closed higher albeit slightly, hence the markets really started to turn late. China was not affected and that tells a tale. Its program selling, especially weakness seen in indexed stocks as they were sufficient liquidity, index related.

Why trigger the program selling, well if you receive some bad news during Asian time zone but the bad news is for US companies, which you think is sufficiently bad to turn sentiment southwards, the easiest is to sell futures of any markets stock indices. That in turn triggers sell programs further in selling down stocks as the disparity in futures would cause these programs to buy futures and sell stocks to cover.

So, what's the bad news? Cisco’s shares declined 10%-12% in premarket trading after the network-equipment maker late Wednesday warned of declining public spending and posted weaker quarterly margins. Cisco is a big enough barometer to pull down other big techies for sure. So, it was a bet, which I think is pretty shallow. It may not just be Cisco but an aggregation of factors, but once program sells hit the markets, they tend to exaggerate the downside as "no one seems to know the real reasons, so they sell first ask questions later".

Believe you me, I think the US markets will be able to hold onto its sensibilities and we should see a steadier market tomorrow.

One can easily concoct a bad scenario for the same event or paint a good one, its just shifting the reasoning to suit where the markets are headed. For example, US jobs figure is still bad which is bad if you are looking from a recovery angle, but good as it will maintain low rates there much longer, thus making stocks more attractive.

Fiscal Deficits, Current Account Surplus & Asset Class Returns As At May 31, 2010

Wow, May was THE month alright. Look at the returns for May. Everything were red except for US bonds. May was the worst month for the major asset classes since the dark days of February 2009. Virtually everything suffered with more than trivial losses. Treasuries were the exception, thanks to the revived rush to safety.

Stocks around the world led the decline, with foreign developed markets posting the biggest loss among the major asset classes. What changed the sentiment so sharply in May? A renewed fear of deflation was one catalyst. Investors are increasingly focusing on the growing burden of debt that weighs on the global economy, particularly in the mature countries of Europe, Japan and the U.S.

It was inevitable that the surge in asset prices across the board would come to an end. That doesn’t mean that expected risk premiums are nil or negative. But the investment landscape ahead is set to become more complicated. In the spring of 2009, as it became clear that the global economy wasn't going to implode after all, the markets repriced assets accordingly. Markets are no longer trading in anticipation of another Great Depression.



We may have avoided another Great Depression but we now have the The Winter of Euro-Discontent. To a large extent, we can say that this is more localised than the subprime mess. In another angle, the Eurozone crisis is a different version of the US/UK subprime mess as well.

The US and UK governments acted swiftly to contain the mess, by rescuing dubious companies that cannot be allowed to fail. The US government can print money liberally and even with an enlarged debt, the US is still the US. Not so for many of the governments in the Eurozone. If Greece was the US, Greece would not have been under such a spotlight. It would have been able to print its way out of its troubles.

What is real is we are going to see a long period of deflation within Eurozone, with equally weighty weights on the Euro currency, and other independent European currencies. Public debt or sovereign debt inhibits movements in or grandiose monetary policies. While they have to placate foreign buyers of the attractiveness of their bonds, they are hamstrung by not being able to do deficit-stimulus. Unemployment and social unrest will only climb.



All this will mean that other countries may be wanting to delay tightening, such as the US, China and a host of more vibrant emerging markets. When investors compare the EU with the rest of the world, its obvious. Then you STILL have a low interest rate regime everywhere, in fact a prolonged low interest rate environment - that will cause funds (now on the sidelines) to pour into the US and other emerging markets. The more EU plays out the cards they were dealt with, the more optimistic I am of a strong equity market for the US and emerging markets in 3Q and 4Q.

Technically, Japan is in a more difficult position with a huge fiscal deficit but they still have a current account surplus, and that should be the key in estimating the probable recovery by EU countries in crisis. Watch their current account movements and signs of improvement will mean they are on the mend. Well, we all know that that is not going to happen till 4Q2010 if not later.

As a side note, Malaysia looks impressive with its strong current account surplus, and owing to our deficit-stimulus funding, our fiscal deficit is a bit high but not exceedingly so. Being an emerging market economy, it would be wise to bring the fiscal deficit down gradually over the next 3 years.