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We May Have A Possible Bonanza Of New IPOs In Singapore – But There’s A Good Reason for Investors to Be Wary

Credit: Simon Cunningham

Investors who feel that there are too little companies in Singapore’s stock market may have reasons to rejoice soon.

Earlier today, The Business Times published an article from Bloomberg, stating that stock exchange operator Singapore Exchange Limited (SGX: S68) is looking to double the market capitalisations of companies listed here in Singapore over the next three to five years.

According to Muthukrishnan Ramaswami, president of Singapore Exchange, this doubling will “happen through listings from China, from India and from other locations.”

For some perspective, The Business Times article noted that the 776 companies listed on Singapore’s stock exchange currently have a collective market value of some “US$587 billion [around S$790 billion] as of [today].”

This can be considered a big, hairy, audacious goal for Singapore Exchange and if the firm succeeds, its business may receive a much-needed energy booster. Singapore Exchange’s revenue has been stagnant since peaking at S$769 million in the fiscal year ended 30 June 2008 (FY2008) and the firm’s share price has reflected that. You can see these two developments in the charts below:

Singapore Exchange's historical revenue (1) Singapore Exchange's share price, From 1 January 2008 to 23 April 2015

Sources: S&P Capital IQ

But while getting more firms to conduct initial public offerings (IPOs) in Singapore can help grow Singapore Exchange’s business and provide investors with more choices, it’s worth pointing out that investors have a reason to be wary.

I say this because of an earlier article I published last December titled “The 1 Secret About IPOs The Finance Industry Will Never Tell You”. In it, I wrote:

“And as it turns out, of the 752 shares that I looked at, some 497 were currently at prices lower than where they were at the close of their very first day of trading. In other words, roughly two-thirds of local shares are now likely lower than their IPO prices.”

The particular stat I found – that two-thirds of local IPOs have been losers – is a stark reminder that it may pay for investors to be careful with new listings.

A Fool’s take

But with all that being said, I think this ambitious goal of Singapore Exchange is still an overall positive for investors. That’s because all these potential new companies that might list in Singapore can still be great investments at the right price even if they may not be attractive investment targets during and shortly after their listing.

Having more companies to choose from is a great thing if investors are paying attention to the price they pay for a company’s shares in relation to the value they’re getting.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any company mentioned.