Singapore's iconic leader Lee Kuan Yew used centralized control to develop the island-nation's corporate stalwarts, but now the city-state may need to loosen the reins to keep its market relevant.
"The last 50 years, the focus clearly was job creation," Hozefa Topiwalla, head of research for Southeast Asia at Morgan Stanley, said in a press briefing Monday, noting that the government built up a stable of government-linked companies (GLCs) and wooed multinational companies (MNCs). But now, "it's probably stifling entrepreneurship," he said.
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The effects of picking key sectors can be seen in the city-state's stock market. Shipping, ship-builder and commodity plays once made up a large portion of the market capitalization, but now many of those stocks have stumbled; some of them have been cut from the benchmark Straits Times Index. Average daily volume has dropped to 1.15 billion Singapore dollars ($850 million) in May, compared with 1.756 billion Singapore dollars in May 2010.
At this point, foreign countries and the GLCs combined account for 70 percent of SGX's market capitalization, according to Morgan Stanley data.