...The above have negatively impacted the quarter’s performance and will result in an operating loss for the Post and Parcel segments for the quarter.

The Logistics segment (including Famous Holdings and Freight Management Holdings), on the other hand, continued to perform well. The Property segment remained stable.

Yong Jun Yuan
2249 words
22 July 2022
Business Times Singapore
STBT
English
© 2022 SPH Media Limited

Younger traders may have been drawn to online platforms by slick marketing and low costs. But they are staying for the variety and the improved user experience.

A FREE Tesla share. A cash incentive of S$88. Zero-commission trades for 180 days.

Amid a roaring bull market in the last 2 years, several retail brokerages have been on an advertising offensive with a mix of low rates and alluring freebies.

Data analyst Lim Pin Xiu, 25, said she signed up with Up Fintech's Tiger Brokers in August last year after her friend sent her a referral code. In the process, she received a free Apple share while he gained some referral rewards.

Lim, who was already a regular investor with other robo-advisors, said she was drawn to a stock recommendation feature on the Tiger Brokers platform.

"I thought I might as well try out the feature and see how it goes," Lim said.

She ended up buying shares of US-listed retail companies Crocs and Lululemon, following the online brokers' recommendations.

Savvy marketing techniques, in combination with a sharp fall in equity prices, have allowed several online brokerage platforms to succeed where their peers have struggled: drawing younger customers.

But industry watchers said the most successful brokerages are also trying to do things differently. Besides bringing down their prices, they also offer variety and user-friendly platforms.

Asean banking and capital markets leader at EY, Seah Li Yun, said the younger and more tech-savvy investors are driving the growth of online brokerages.

"(These investors) are seeking more value-add from their preferred brokers, such as how these digital brokerage platforms create execution efficiency and how it translates into price efficiency in brokerage rates," she said. Asean banking and capital markets leader at EY, Seah Li Yun, says younger investors are driving the growth of online brokerages. PHOTO:EY

Ease of use is another differentiator. Willy Chang, associate partner at Bain & Co, noted that many of these digital-first brokerages are set up to make it easy to trade multiple asset classes, including equities, mutual funds and exchange-traded funds (ETFs).

"They're just way easier to use, native to the phone for new joiners, and do not overwhelm with all the analysis and graphs," he said.

Sumit Kumar, managing director and partner at Boston Consulting Group (BCG), said there is demand for variety in both asset classes and markets. He pointed, for instance, to Interactive Brokers' efforts to add cryptocurrencies to its list of tradeable assets.

Interactive Brokers user Chin Shao Ming, 25, said that apart from the company's competitive exchange rates, he liked that the brokerage offered access to the London Stock Exchange, where Irish-domiciled ETFs of US stocks incur lower withholding taxes on dividends received.

Growing revenue, profitability

Despite the freebies and discounts, low-cost digital brokerages have been able to generate profits – although some have been hit by weakening trading sentiment.

Futu's net income for the first quarter of this year fell 50.8 per cent year on year to US$73 million. The company owns trading platform moomoo.

Up Fintech saw a net loss of US$5.9 million, from a net income of USS$21.1 million in the year-ago period.

Trading volumes at Futu and Up Fintech in the first quarter of this year fell by 41 per cent and 26.5 per cent, respectively.

Benjamin Quinlan, managing director and chief executive of Quinlan & Associates, sees brokerages experimenting with various monetisation models to grow revenue.

Fees could be lower on simple instruments and higher on complex instruments, for instance, or users could be offered subscription tiers with value-added services.

Quinlan has personally experienced high foreign exchange (FX) spreads when trying to buy US equities using Hong Kong dollars on Futu's "niu niu" app.

"When I bought US dollars, I got slammed with the widest spread possible... but guess what, I wanted to do the trade straight away, so I just put through the FX trade," he said.

The tiered pricing model is one in use by Interactive Brokers. The company, which is listed in the United States, saw net income fall 31.8 per cent to US$73 million in the first quarter of this year.

Interactive Brokers has a "pro" tier, which charges a small commission on trades. Trades on its "lite" tier are free, but may be executed by other market makers or exchanges. The latter then pay Interactive Brokers fractions of a penny per share, in a process known as payment for order flow (PFOF).

The US Securities and Exchange Commission is eyeing a ban on PFOF, as the practice has been criticised for potentially disadvantaging retail investors and resulting in worse prices for their trades. The practice is relatively uncommon in Asia.

David Friedland, managing director for Asia-Pacific at Interactive Brokers, said the "vast majority of customers" trade on the pro tier as they value other features such as higher interest paid on idle cash balances and lower interest charged for margin loans.

"The sales are better on 'pro' as our clients tend to be more knowledgeable, and they know what they're getting," he said.

Old is still gold

To be clear, it isn't just the newcomers that are managing to win over younger customers. Interactive Brokers, for instance, is a low-cost digital-first brokerage with some 44 years of history.

BCG's Kumar noted that the more established players tend to be able to make certain parts of trading more seamless.

For instance, some brokerages only pay out earnings from a stock sale 2 days after it is completed. But the more established players can transfer earnings out early, albeit for a fee.

"If you are able to actually get money in and money out (of the platforms) very quickly and seamlessly, then literally, you are the king," he said.

Chin, the Interactive Brokers user, said he had both moomoo and Tiger Brokers accounts as well. He chose, however, to settle down with Interactive Brokers because it had the most intuitive interface.

"When you want to transfer funds or convert currencies (in Tiger Brokers or moomoo), there are a lot of buttons everywhere, which will lead you to different functions," he said. The Interactive Brokers interface, however, shows these important functions on the main page or in an "accounts" tab.

Despite their seemingly limited popularity among younger investors, Bain's Chang also noted that retail investors with more money to invest will also prefer to invest with established brokerages.

"If I put in a big trade, do I have a guarantee that it's executed?

"Depending on (the incumbent), they would generally have more advanced features," he said.

The challenge for the low-cost brokerages targeting investors with less to invest would therefore be in growing the customer base and keeping customers loyal, Chang added.

Over at iFast Corporation, there is a focus on creating tools to engage investors with different investment styles - both self-directed and advisor-led.

The company started out in 2000 as an online platform called Fundsupermart, where investors could buy and sell unit trusts. It grew in popularity thanks to its low fee structure and self-directed trading platform.

Since then, iFast has added a variety of financial products to its platform – including stocks and bonds – and also added features to appeal to a wider range of customers.

For instance, it has a financial planning arm called iFast Global Markets (IGM) that offers portfolio advice to clients. Even this service, however, is evolving.

IGM's general manager for Singapore Terence Lin noted that investors are increasingly self-directed, so resources have been put in to allow investors on the IGM platform to make their own trades as well.

Lin also noted that the pool of investors who want to be serviced by advisors at their current rates could decrease. Instead of serving 50 to 100 clients today, advisors could be expected to serve 500 to 1,000 clients for lower fees in the future.

"Even if margins eventually get eroded, the scale would then help to offset some of that," he said.Driving user engagement

Despite all the innovation – using technology to scale up and bring prices down, or fine-tuning digital interfaces – the holy grail remains user engagement.

Brokerages only make money if their customers trade, and many need to be prodded into doing so.

BCG's Kumar noted that the community aspect of investment has been a major driver of investing – especially among the younger traders.

Many market observers have noted the numerous forums that have spawned online, showing how regular Joes made money through their investments. Reddit forums such as r/singaporefi, r/investing and the infamous r/wallstreetbets are driving the fear-of-missing-out, or Fomo, mindset among millennial investors.

"We want somebody to tell us where to invest, and we tend to listen to people who are either loud, or have actually been able to make money," Kumar added.

Many brokerages have their own versions of these online forums. For instance, moomoo, Tiger Brokers, and PhillipCapital's upcoming Poems 3.0 app all feature some form of community forum.

All 3 brokerages also said they have moderators and processes in place to prevent the spread of misinformation.

Gavin Chia, managing director of Futu Singapore, said he has seen organic conversations spring up among investors within moomoo's forum. Many of them share in each other's successes and losses, he said.

Phillip Securities executive director Luke Lim, meanwhile, said that while some of its remisiers engaged investors using WhatsApp groups during the pandemic, it would like to use the online forum to better reach investors as well.

One such way would be to allow its research analysts to post to Poems 3.0's forum, so that clients can hear from them directly.

These forums can also be a means of communication with customers.

"One of the things we're trying to do is to raise awareness... when we organise events with listed companies, and we allow retail investors to talk to chief executives directly," he added.

"We are also encouraging them to consider ESG (environmental, social and corporate governance) questions," he said, adding that the company has seen about S$300 million being invested in ESG products by its investors.

Digital investment platform ProsperUs, meanwhile, is taking aim at financial literacy.

ProsperUs is owned by brokerage CGS-CIMB Securities, but it has its own separate platform targeted at tech-savvy investors – mostly millennials and Gen Z – who are looking for a more digital experience.

For 8 weeks between October and December, CGS-CIMB will jointly organise a national investment challenge with Republic Polytechnic for students from 10 polyclinics and universities.ProsperUs is CGS-CIMB's platform for younger investors looking for a more digital experience. PHOTO: PROSPERUS

Said Saw Ping May, founder of ProsperUs: "We wanted to be very clear that their first touch point with us, preferably, is not us selling them a product but to learn financial literacy because...it's important to know how to build a nice nest egg for yourself before you go out and invest."

She also noted that CGS-CIMB continues to have a multi-product sales team, so investors who prefer a more "hybrid" approach can still speak to advisors if they need additional support.

Meanwhile, digital brokerages such as moomoo and Tiger Brokers are also starting to host physical events and seminars – following in the footsteps of their incumbent peers.

A seminar hosted by moomoo on Jul 16 had speakers from Barclays Singapore, the Singapore Exchange and State Street Global Advisors.

"We will be doing more surveys, but generally we want to engage with clients, we want to be a little bit more on the ground and tell our clients that as much as you can see us online, we will be there physically if clients would like to know more," said Chia of Futu.

Tiger Brokers Singapore director of strategic planning Edmund Lim said the company launched its Tiger Prestige initiative in June to provide high-net-worth investors with trading perks and specially curated seminars.

"At the gala dinner for the launch of Tiger Prestige, our top clients were telling us that there's no face to Tiger Brokers because they are not seeing anybody, they are just seeing the platform...

"That's a scary thing, because if there's no relationship being built with our top clients, these clients can go at any time," he said.

BCG's Kumar noted that a high-net-worth individual trading through discount brokerages would not necessarily be looking for a relationship manager.

"What he's most concerned about is at the moment of truth, when he has a problem, it is taken with utmost sincerity and urgency.

"The problem is when they have a complaint, when even a human being is not able to solve it for them, and that's when the whole relationship gets sour," he said.

Bain's Chang likened this sort of relationship building to skipping the travel agent when buying plane tickets, but still expecting some form of high-touch service to help with baggage check-ins.

Said Chang: "Definitely, I don't want to go to a person to trade (with a digital brokerage), but I want to be delighted by that touch point."

SPH Media Limited

Singapore is lobbying its largest technology companies to relist in the city-state, arguing it is their “national duty” in an escalation of the financial hub’s bid to boost the appeal of its stock market.

Over the past year, exchange officials have intensified attempts to persuade Singapore-based companies, including tech conglomerate Sea and superapp Grab, to return after completing initial public offerings in the US, said people familiar with the discussions.

Officials have previously promoted the benefits of a secondary listing on the Singapore stock exchange to Sea, pitching it as an opportunity to be included on local stock indices and benefit from extra fund flows, one of the people said. But more recently, the company has been pressured to fulfil its “national duty” to the city-state, they added.

Singapore’s patriotic pitch underlines its struggle to lure more high-profile listings to its stock exchange, despite the financial hub in recent years emerging as a popular incubator for tech companies such as Sea, which owns ecommerce app Shopee and popular online game Free Fire.

Sea and Grab have considered homecoming share sales, following similar moves by Chinese tech companies in Hong Kong. But SGX has been mired in low trading volumes and accounting scandals that have prompted delistings, while the global tech market rout this year has diminished the appeal of pursuing another flotation.

One finance industry professional in Singapore said there had been an overt effort to pressure overseas-listed businesses since early this year.

Grab, a ride-hailing and food delivery app that completed a $40bn listing in New York in December, has also been targeted, the person said. Its merger with a special purpose acquisition company was the biggest of its kind globally.

A person close to Sea, a $39.8bn business that debuted in New York in 2017, said SGX officials have requested meetings with the company as frequently as every few months.

Singapore’s charm offensive comes after a handful of start-ups in neighbouring Indonesia opted to list locally for their IPO. Jakarta has lured businesses away from more developed markets with looser regulations, such as allowing dual-class shares that give founders greater control of their companies.

When GoTo, the country’s biggest tech start-up, listed in Jakarta in April, chief executive Andre Soelistyo said he would “like to express our gratitude to the government of Indonesia . . . for their continued commitment to the growth of Indonesia’s digital economy”.

But the person close to Sea said the company was unlikely to bow to pressure from Singapore. In May last year, Sea was allowed to enter MSCI’s index of Singaporean companies after the index provider said foreign-listed businesses were eligible.

As with Grab, Sea’s stock has plunged more than three quarters over the past 12 months amid a broader tech stock sell-off, further damping the incentive to raise money at its current valuation.

Grab and Sea declined to comment. SGX did not respond to a request for comment.

Singapore state fund GIC is directing money towards real estate and other inflation-protecting assets as it prepares for several years of disruption from rising prices.

GIC’s management said in an interview with the Financial Times that soaring inflation could reverse gains it had made in recent years and warned that the world could face an extended period of stagflation if policymakers did not take appropriate action.

The warning from GIC, whose assets are estimated by analysts to exceed $700bn, reflects the potential impact rising prices could have on institutional investors who have for years capitalised on accommodative monetary policies.

The prospect of stagflation is particularly concerning to GIC, whose mandate from the government is to deliver inflation-beating returns over the long term and increase the purchasing power of Singapore’s foreign reserves.

“We could be staring at a prolonged period of difficulty. [Stagflation] could last as long as a decade,” said chief executive Lim Chow Kiat, referring to the painful mix of high prices and low growth.

Inflation could “reverse a lot of those gains” made by the GIC since it launched in 1981, he said. He would not comment on how many years’ worth of returns he expected could be wiped out.

Lim was speaking ahead of the release of GIC’s annual results on Wednesday, which showed that the fund delivered an average annual return of 4.2 per cent above inflation over the past 20 years. This figure, its main performance metric, was a dip from the 4.3 per cent recorded a year earlier.

GIC, which does not disclose the total value of its assets, increased its exposure to real estate from eight to 10 per cent of its portfolio in the year to March. Its allocation to equities dropped two percentage points to 30 per cent of its overall investments.

The report followed a string of international property acquisitions over the past year, including the Paddington Central office estate in London and at least two providers of student housing in Europe.

Short-term rental properties, such as office buildings and student housing, are less exposed to rising inflation because they can increase prices accordingly, said chief investment officer Jeffrey Jaensubhakij.

“We need to work extremely hard to try to find the assets that we think will be able to survive any near repetition” of the prolonged inflation of the 1970s, he said.

He said a repeat of this period would be a “worst case” scenario, adding that central banks now have a greater understanding of the problem.

UG Investment, one of the oldest hedge funds specialising in Chinese markets, is planning to open its first office outside greater China to step up investment in south-east Asia in a move that would help it guard against the risks from any conflict between China and Taiwan.

The fund, which manages assets of about $4bn, will open an office in Singapore, according to three people with knowledge of the details. It launched in 1998 and currently operates from Taipei and Shanghai.

Tensions between the US and China have increasingly centred on Taiwan, with Russia’s invasion of Ukraine in February fuelling speculation that Beijing could try to annex the democratically governed island in the next few years. China claims sovereignty over Taiwan and the Chinese military has significantly increased its activity in the region over the past two years.

Two people with knowledge of UG’s plans said the risk of invasion was one factor in its decision to open a Singapore office. Other factors included talent retention and recruiting new staff to invest in south-east Asia, one of the people said.

UG’s management, including its chief investment officer Rachel Tsai, are not expected to relocate from Taiwan and the fund will not close its offices in greater China, according to one of the people.

UG’s chief operating officer Brandy Chen, who joined the hedge fund from JPMorgan 13 years ago, visited Singapore in June to look into regulatory licences and office space, the person added.

UG said in response to a request for comment on its move to Singapore that the Financial Times’s information did “not reflect truthfully” its standpoint, but did not elaborate further.

Investment professionals in the region described the opening of an office in Singapore as a sensible precaution.

One founder of another investment firm with links to Taiwan and Hong Kong said it was a “prudent move” but added that he believed the risk of a Chinese invasion of Taiwan was minimal.

“South-east Asia, especially Vietnam and Indonesia, is where Taiwanese money is generally going in any event,” he added.

Singapore is working to bolster its reputation as a leading financial centre in Asia. Hong Kong has historically been the main hub for global financial services groups in the region, but Beijing’s national security law and draconian pandemic control measures have damaged its reputation.

Singapore launched a new corporate structure in 2020 to encourage hedge funds to move assets.

One of the people with knowledge of the business described UG as one of the “best-kept secrets” of Asian hedge funds.

The low-profile fund was launched by Eugene Wang in 1998 with $20mn of seed capital after he left Taiwanese brokerage group Yuanta Securities. It was one of the first hedge funds in Taiwan and one of the earliest foreign investors in Chinese markets.

It was granted a qualified foreign institutional investor licence shortly after China launched the scheme in 2002, which permitted foreign investors to trade on stock exchanges in Shanghai and Shenzhen for the first time.

Multibillion-dollar hedge funds, private equity firms and family offices from Asia, Europe and the US are poised to move assets to Singapore, after the city state launched a corporate structure in a bid to become the region’s leading financial centre.

The moves come amid growing concerns about the status of Hong Kong. Funds have been developing contingency plans for life outside the semi-autonomous territory after months of pro-democracy protests last year and Beijing’s decision to impose a national security law.

Japan and Singapore have both stepped up efforts to present themselves as the best alternative, with Tokyo expected to offer free office space, visa waivers and fast-tracking of licences.

Singapore launched a legal structure in January called the Variable Capital Company, designed to lure the assets of fund managers and family offices registered in low-tax jurisdictions such as the Cayman Islands and Luxembourg. The VCC is designed for both traditional and alternative investment funds and can be used either as a standalone entity or as an umbrella for multiple funds.

The structure shares many tax-efficient features of Luxembourg’s Sicav, the Segregated Portfolio Company (SPC) in the Caymans and Hong Kong’s Open-Ended Fund Company (OFC), said tax experts.

A large part of the VCC's appeal derives from the country’s strong regulatory reputation relative to other domiciles, said asset managers that have launched the structure.

The government is also offering to offset up to 70 per cent of eligible set-up costs with a cap of S$150,000 ($108,000) per VCC, under a scheme valid until January 2023.

At least four multibillion-dollar real estate and credit funds with managers based in Tokyo, Hong Kong and Singapore are in the process of registering VCCs. One $1.5bn private equity fund as well as several Japan and Asia-focused hedge funds are also in discussions to do so, according to people with direct knowledge of the situation.

Seventy VCCs — many set up by small and boutique funds or local family offices — have already been launched.

But a much larger wave of companies is coming, say bankers, fund managers, tax advisers and other people familiar with the situation.

“We’ve heard of families from Europe and North America looking at this in a very serious way . . . and some of these have engaged lawyers to work on their mandates,” said Lee Woon Shiu, regional head of wealth planning, family office and insurance solutions at DBS Private Bank in Singapore.

The Cayman Islands, which has historically attracted a large portion of new global hedge fund assets, is reeling from the EU’s decision in February to add the jurisdiction to its blacklist of non-cooperative tax jurisdictions. A significant number of funds with assets in the Cayman Islands are run by managers based in Hong Kong.

The VCC legislation “came out at the right time to soak up this demand where asset managers are now slightly nervous of having their product not only in offshore jurisdictions”, said Armin Choksey, Asia Pacific Asset & Wealth Management Market Research Centre Leader at PwC Singapore, who helped set up the structure.

Yap Chee Wee, chief executive of Fleur Capital, a Singapore-based wealth management firm that has set up a VCC jointly with a visual effects company, said Singapore’s structure marked the first solid challenge to existing fund domiciles in years.

“In my 20 odd years in the financial industry, this is the first time there’s [been] major change. It was long awaited and should have been done much earlier,” he said, adding that he is considering redomiciling the company’s existing funds from the Cayman Islands.

Benny Chey, assistant managing director at the Monetary Authority of Singapore, the de facto central bank, said he expected the VCC to “attract the interest of private wealth and large institutional investors” thanks to its “capital variability, segregation of assets and liabilities, and its ability to access tax treaty benefits”. 

Mr Chey added that requiring VCC fund managers be regulated by the MAS and imposing anti-money laundering and counter-terrorism obligations are among the measures that will ensure these structures’ legitimacy.

Kalwant Singh’s death sentence was settled on a Zoom call.

The Malaysian watched from prison as his appeal was discussed virtually by three Singapore judges this month. For Singh, convicted of smuggling about 120g of heroin, it was his last chance of a reprieve after spending more than six years on death row. He listened silently as a translator interpreted the discussion.

Despite agreeing to provide evidence to the police, Singh’s appeal was dismissed. He was hanged the following day.

After two years without any hangings, Singapore has carried out six executions in 2022, the highest level since 2018, including an intellectually disabled man who was hanged in April. At least another seven prisoners have received execution notices, according to anti-capital punishment activists in the city-state.

“Singapore is not giving us time to digest the previous execution. Suddenly the next one is coming up,” said Sangkari Pranthaman, whose brother Pannir Selvam is on death row. “Pannir is in the danger zone . . . My heart is crying.”

Kirsten Han, who has campaigned against the death penalty for more than a decade, suspects more execution notices are being issued because it is running out of space on death row. “It is definitely the worst year I have seen,” she said.

It could be “very similar to how hospitals clear up beds for more patients. They are clearing up cells for more people who they are going to put on death row”.



Singapore’s dogged commitment to capital punishment has highlighted the regressive policies in one of the world’s most liberal economies, critics said.

For decades, the affluent city-state has drawn wealthy expatriates with its reputation for safe streets, rule of law and strong legal protections for commercial transactions.

But its treatment of foreigners convicted of trafficking even small amounts of drugs exposes a darker side of Singapore, activists said.

The financial hub’s recent revival of the death penalty may also be straining the diplomatic and business relationships on which it depends. Last week, the EU called for an immediate suspension of hangings, warning Singapore that it was a “cruel and inhumane” punishment.

“Governments just should not be in the business of killing people,” British tycoon Richard Branson told Vice News this year, as he called for Singapore not to execute Nagaenthran Dharmalingam, a Malaysian drug trafficker whose supporters said he had an IQ of 69.

“Business leaders do take these things into consideration . . . If you’ve got one country that does the death penalty [and] another that doesn’t do the death penalty, you’ve got a choice of where you’re going to put new offices.”



Multinationals in Singapore still largely avoid the issue, however. Companies including Google and Goldman Sachs have been criticised for backing liberal causes, with the government restricting them from funding the annual gay pride parade in 2016.

Singapore faces little pressure from voters to reverse its stance. A 2016 survey by the National University of Singapore found that 87 per cent of locals were in favour of executions for drug trafficking.

In the face of rising criticism this year, Singapore has defended capital punishment as protecting lives, arguing that it had a “clear, deterrent effect on drug traffickers”. The home affairs ministry added that the punishment was enforced through a “rigorous legal process with stringent judicial safeguards” and that the courts found Dharmalingam was not disabled.

The government does not readily disclose details about who is facing execution. Transformative Justice Collective, which supports convicts, said at least 59 people were on death row. Families of prisoners said inmates slept on the floor in isolated cells and could hear the sounds of others being hanged.

Finding lawyers willing to take on execution cases was difficult although campaigners said four executions scheduled for this year have been stayed by legal challenges. Many convicts come from poor backgrounds, often from across the border in Malaysia, and struggle to scrape together the legal fees.

“No lawyer wants to handle this case anymore,” said Nazera Lajim, days before her brother Nazeri was executed for drug trafficking this month. She said Nazeri, who only had a primary school education and became dependent on heroin at 14, had to file his own appeal to the court.

Pranthaman, who travels overnight on the bus from Malaysia to see her brother in prison on Saturdays, said she was detained by the police and made to give a statement after posting a drawing on Facebook of the room where she visits him.

“I’m not interested in going to this country anymore, except to visit my brother,” she said. “They claim that they are the safest country. [But] you have no freedom at all.”

The resurgence of executions, however, has not deterred foreigners from wealthier countries. Far from Changi Prison, expats still throng the central business district.

“It is not my place to tell [Singapore] how to do their business . . . If people are being tried in front of the court of law as expected, then there it is,” said one recent arrival when asked about the executions. “If you don’t like it, there are other places to make yourself at home.”