Amidst the unstable international landscape, driven by US-China competition, regulatory changes in Hong Kong, and adjustments to Japan's stimulus policies, Singapore stands as a pillar of financial and geopolitical stability. Recently, the Singaporean government has been pursuing proactive initiatives to invigorate its capital market and establish the city-state as a financial stronghold.

Current State and Growth Potential of Singapore's Capital Market 

A June 2025 Morgan Stanley report projected Singapore's stock market capitalization to exceed $1 trillion by 2030. However, the current Singaporean market lags behind regional competitors like Hong Kong in terms of liquidity and the number of listed companies. As of January 2025, Singapore's total stock market capitalization was approximately $644.8 billion, whereas Hong Kong's reached about $5.2 trillion in February 2025, making the Hong Kong market roughly 7.8 times larger than Singapore's. The average daily trading volume also shows a significant disparity, with Singapore at merely S$1.2 billion (approximately US$880 million) compared to Hong Kong's approximately US$17 billion. These are key challenges that Singapore must address to establish itself as Asia's premier financial hub.

Singapore's securities market has faced significant issues since 2013. Factors such as low retail investor participation (around 15% of trading volume), a scarcity of high-quality listed companies (only 12% of companies achieve a Return on Equity (ROE) of 8% or more), and liquidity being highly concentrated (approximately 80%) in Straits Times Index (STI) stocks are cited as weakening the competitiveness of Singapore's stock market.

Introduction of EQDP and Proposal for ESI Establishment 

To foster this growth, the Monetary Authority of Singapore (MAS) launched the Equity Market Development Programme (EQDP) in February 2025. This program plans to inject S5billion(approximatelyUS3.7 billion) to boost liquidity, especially in the small and mid-cap market, and strengthen the asset management ecosystem. Maybank Research predicts that the EQDP has the potential to increase small and mid-cap (SMID) liquidity by up to 19 times.

Indeed, as of May 2025, the MSCI Singapore Index has returned 13% year-to-date, outperforming the MSCI World Index (6%). Stocks such as ComfortDelGro, iFAST, and ParkwayLife REIT are early beneficiaries of this upward trend. Morgan Stanley anticipates a further 10% upside in these SMID stocks by 2027, with iFAST's AI-powered asset platform and ParkwayLife REIT's expansion into the healthcare sector being key growth drivers.

To solidify Singapore's position as Asia's leading financial hub and a crucial geopolitical nexus, a proposal has been put forth to institutionalize the EQDP into Equities Singapore International (ESI), a statutory board under the Ministry of Finance. ESI could play a pivotal role in stabilizing domestic capital and attracting global capital by utilizing Singapore's official foreign reserves (S466billionasofDecember2024)asafundingsourcetoinjectS5 billion into the EQDP.

ESI's Operational Strategy: Utilizing ETFs and SDRs 

ESI plans to secure capital by drawing on the successful precedents of Singapore's Economic Development Board (EDB) and Enterprise Singapore. Specifically, it will invest in two Exchange Traded Funds (ETFs): the ST Large & Mid Cap Index ETF and the ST Small Cap ETF, leveraging the FTSE Straits Times Index Series. This strategy is expected to enhance Singapore's neutral stance and position it as a stable investment destination in the "VUCA (Volatility, Uncertainty, Complexity, Ambiguity)" era.

ESI will pursue its initiatives through partnerships with foreign sovereign wealth funds (e.g., Norway's Government Pension Fund Global, Abu Dhabi Investment Authority), pension funds (e.g., Canada Pension Plan Investment Board), and domestic banks like DBS, OCBC, and UOB. By combining S2billionfromtheEQDPfundwithS1 billion from foreign funds and S500millionfromdomesticbanks,atotalinvestmentpoolofS3.5 billion can be created. This investment pool will target a portion of Singapore's stock market capitalization.

Fifty percent of the ETF profits will be reinvested into the ETFs to maintain liquidity, and the remaining 50% will be allocated to EQDP initiatives (e.g., SMID funds, research grants, investor education, and promotion of Singapore Depository Receipts (SDRs)) to generate sustainable capital flows.

Furthermore, ESI plans to actively encourage the issuance of Singapore Depository Receipts (SDRs) to address the shortage of high-quality securities. SDRs are financial instruments that allow foreign company shares to be traded on the Singapore Exchange (SGX), significantly improving accessibility by enabling trading of foreign stocks in Singapore dollars during local trading hours without needing to directly comply with local listing requirements. For example, SGX SDRs for Thai companies have increased trading volume for specific stocks by approximately 15% since 2020.

By streamlining the SDR issuance process, offering a 20% reduction in initial costs through ESI subsidies, and providing a 10% tax refund on SDR-related secondary listings, ESI expects to attract high-growth companies such as GoTo from Indonesia, Zomato from India, and Grab from Malaysia. This will address Singapore's shortage of quality stocks, enhance market credibility, and boost liquidity and investor confidence.

Economic and Social Ripple Effects 

Institutionalizing the EQDP into ESI is expected to bring significant economic benefits across various sectors. First, increased liquidity in Singapore's securities market will foster job creation in financial services, including asset management, FinTech, and market analysis. Second, by aiming to raise retail investor participation to 20%, it can democratize wealth creation and align with Singapore's inclusive growth agenda. Third, the introduction of SDRs and ETFs will attract more international capital, further solidifying Singapore's position as a financial center.

Moreover, ESI's focus on advanced technology sectors such as Artificial Intelligence (AI) and autonomous vehicles aligns with Singapore's Smart Nation initiative, promoting innovation and increasing investment in research and development. Foreign small and medium-sized enterprises listed on growth markets like London AIM, Nasdaq First North, Euronext Growth, and the Tokyo Stock Exchange Growth Market can leverage SDRs as a cost-effective gateway to Asian capital markets, enhancing their growth prospects and contributing to a more vibrant economic environment.

However, Singapore's stock market has seen a concerning trend for investors from 2015 to 2024, with market capitalization decreasing and delistings consistently outpacing new listings. This has led to reduced market liquidity and fewer investment opportunities for retail investors. According to the UBS Global Wealth Report 2024, wealth inequality in Singapore surged by nearly 30% from 2008 to 2023, with the asset Gini coefficient rising from 57 in 2008 to 70 in 2023. This is the highest increase among the countries tracked by UBS during that period, showing a continuous and distinct trend since 2015. This market contraction effectively narrowed wealth creation pathways, and the privatization process concentrated investment opportunities in the hands of major shareholders, pushing retail investors toward riskier alternatives.

Global Business and Geopolitical Advantages 

Institutionalizing market reforms, promoting Singapore's capital market, and establishing an anchor institution for domestic capital offers several key advantages.

Liquidity for Global Investors: ETFs and SDRs will address SGX's average daily trading volume issues, where 80% is concentrated in STI stocks, and increase small and mid-cap and foreign-related liquidity, narrowing the gap with Hong Kong.

Hub for Multinational Corporations and Private Equity: ESI's ETF and SDR strategy, streamlined listing procedures, and tax refunds will attract ASEAN IPOs and secondary listings, leveraging ASEAN's estimated 5% GDP growth rate in 2025. This provides listing and exit opportunities for multinational corporations like Grab and private equity firms, positioning SGX as Southeast Asia's financial gateway for AI and tech companies.

Geopolitical Neutrality: Joint investments with diverse global funds and domestic banks, and SDRs for regional companies, strengthen Singapore's neutrality and offset Hong Kong's China-centric perception. The S$50 million capital requirement for the Global Investor Programme further highlights Morgan Stanley's "safe haven" assessment.

Regional Leadership: ESI enhances Singapore's diplomatic influence as ASEAN's financial hub, balances US-China dynamics, and promotes integration through cross-border SDR frameworks.

Some might argue that ESI could build private capital or disproportionately favor Western investors. However, transparent capital allocation processes, a diverse range of co-investors including ASEAN and Chinese funds, and a 5% market cap limit are designed to mitigate potential market distortions. Furthermore, scrutiny of official foreign reserves (OFR) can be addressed through annual reports mirroring the governance model of GIC, Singapore's sovereign wealth fund.

Implementation Plan: A Global Blueprint 

A concrete blueprint for implementing these changes has also been presented.

Legislation: ESI's establishment should be enacted through the ESI Act in 2026, modeled after the Economic Development Board (EDB) Act of 1961 and the Enterprise Singapore Act of 2018. This will require presidential approval for the S$5 billion OFR transfer.

ETF Launch: A total of S3.5billionwillbeinvested,sourcingS1 billion from foreign funds and S$500 million from domestic banks, targeting 5% of market capitalization by 2028/2029.

SDR Expansion: S500millionwillbeallocatedtopromote10−15newSDRsby2028,aimingforanadditionalS10 billion increase in market capitalization, with a focus on AI and tech companies.

Governance: A board of directors will be established, composed of representatives from global institutions such as Norway's sovereign wealth fund, domestic institutions like DBS, and academic experts, to monitor average daily trading volume (ADTV), IPOs, and analyst coverage.

Global Summit: Host a G20 Finance Summit in 2026 to officially launch ESI, inviting regulators, multinational corporations, and investors to showcase Singapore's technology-driven stock market.

Reinvestment Cycle: ETF profits will be reinvested, with 50% reallocated to the ETFs for liquidity maintenance and the remaining 50% used to fund research, education, and SDR promotion.

Transparency: Publish semi-annual reports and conduct public consultations to build global trust in the initiative.

By institutionalizing the EQDP into ESI, following the precedents of EDB and Enterprise Singapore, and stabilizing ETFs with foreign funds and domestic banks like DBS, OCBC, and UOB, Singapore can transform its stock market into a stable and liquid safe haven. By expanding SDR offerings and reinvesting profits to secure capital flows, Singapore's capital market can function as a global financial center operating on transparent and principled neutrality.

Leveraging the Bank of Japan (BOJ) model and capitalizing on Morgan Stanley's prediction of a doubled market capitalization by 2030, driven by 3% GDP growth, AI advancements, and stock market reforms, ESI can enhance liquidity, attract multinational corporations, and further solidify Singapore's neutrality. It is crucial for Singapore's public sector to collaborate with global investors, multinational corporations, and ASEAN regulators to ensure ESI contributes to shaping Asia's financial future, with Singapore's financial fortress now ready for business.