Opening Remarks By Mr Lim Hng Kiang Minister For Health And Second Minister For Finance At The Singapore Bond Investment Fair 2001 On 17 March 2001 At Suntec International Convention And Exhibition Centre17 Mar 2001
Distinguished guests, ladies and gentlemen,
I am pleased to be here at the inaugural Singapore Bond Investment Fair. I would like to commend the Singapore Investment Banking Association (SIBA) for their effort and hard work in organising today's event. Given the rapid developments in the local S$ bond market over the past three years and the recent emphasis on personal responsibility for long-term financial planning, this Bond Investment Fair could not have been more timely.
2 The main aim of the Singapore Bond Investment Fair is to raise the level of public awareness in bonds as another investment product. Retail investors in Singapore are generally less familiar with bonds as an investment instrument compared to other traditional investment alternatives such as equities and deposits. Data on how Singaporeans invested their CPF savings last year reflects this situation. Of the S$19 billion invested under the CPF Investment Scheme, only a mere S$36 million or 0.2% was invested in bonds. Investment in stocks, on the other hand, totaled almost S$10 billion or 52% of the total CPF savings invested. There is therefore a real need to explain the merits and processes of investing in bonds to retail investors. Even the more sophisticated retail investors can benefit from having a deeper understanding of bond investment and developing the ability to better assess the risks involved.
A Thriving S$ Bond Market - More Choices
3 Retail investors in Singapore today are presented with a much wider array of choices in bond investments than ever before. A thriving S$ bond market has emerged in Singapore. Various government measures and initiatives taken over the past three years have created greater depth and liquidity in the Singapore Government Securities (or SGS) market. This has, in turn, also spurred the development of the corporate bond market.
4 In 1997, we saw only a handful of local corporate issuers. Today, the number and types of issuers have increased. Statutory boards, government-linked companies, local corporates and even foreign entities, such as the IFC and GE Capital, have tapped the local debt market for their funding needs. As a result, local retail investors have a wide range to choose from, from Singapore Government Securities to Corporate Bonds of differing credit quality to Asset-Backed Securitisation products as well as Bond Funds.
5 The bond market is evolving. I understand that just last week, some members of SIBA have committed to a market-making role in the S$ corporate bond market. They will provide the bond market brokers with ready prices on selected corporate bonds, including those of JTC Corporation, LTA, HDB, SingTel, Singapore Power and PSA bonds. This means that stock brokers are now able to quote bond prices more readily to retail investors. The trading of retail bonds would thus be encouraged not only in the OTC market but also through the stock exchange. This will no doubt provide a boost to secondary market liquidity.
Cultivating Personal Responsibility in Financial Planning
6 A better understanding of bonds as an alternative investment instrument is timely as Singaporeans are given more leeway to manage their own savings. The government has already liberalised the use of the CPF Special Account and introduced the Supplementary Retirement Scheme.
7 Typically, the local retail investor has chosento either lock his sizeable savings away in fixed deposits or plough it into real estate or the stock market in the hope of higher return. A better long-term investment strategy would involve a well-diversified portfolio of assets so as to manage effectively the risk/returns tradeoff. Bonds have thus-far been a relatively unexplored asset class. It should be tapped more effectively to create the needed diversity in any investment portfolio.
8 Singaporeans need to engage in a more active and systematic financial planning process, either on their own or in consultation with professional financial advisors. First, they need to sort out their personal financial objectives, then think through and implement the strategies that are appropriate for their specific financial targets and risk tolerance levels. Proper and prudent financial planning will help to ensure that we maintain the financial security for unexpected expenses that may befall us and also for retirement.
9 An increased understanding and appreciation of the financial services and products available will certainly contribute to a more effective financial planning process. Such an understanding is important even where professional help is sought from qualified financial advisors amongst the banks, insurers, stockbrokers, financial planners or fund managers.
Instilling Market Discipline
10 Being knowledgeable about investment products, including their individual associated risks, is essential to making good investment decisions and particularly relevant in today?s environment of caveat emptor. The Monetary Authority of Singapore (MAS) has changed its regulatory approach to give the industry more freedom to innovate and to take on calculated risks. With this new supervisory approach, the emphasis is on full disclosure of all relevant information, to enable investors to make better informed investment decisions.
11 Instilling market discipline is everyone's responsibility, not just that of the regulator. Issuers must provide full and prompt disclosure of material information and ensure that such information is easily obtainable and understood by investors. Market intermediaries such as financial institutions, brokers and investment advisors need to provide high standards of professional advice but more importantly, must exercise due diligence to ensure that issuers comply with rules and regulations. Lastly, investors themselves play a critical role in driving and shaping market discipline by being discriminating and selective in their investment choices. Investors should demand the high standards of disclosure and information necessary for them to make informed investment decisions.
12 Apart from the direct market participants, the credit rating industry is another critical player in the bond investment process. Credit rating agencies provide an independent assessment of the creditworthiness of the issuer. It looks at the ability of an issuer of the bond to meet its financial commitments on the interest and principal payments on a timely basis. In other words, it gives an indication of the likelihood of investors getting their money back in accordance with the terms on which they invested. Such information is useful in helping investors make a bond investment decision.
13 This is the first time that various market participants have come together in a concerted effort to educate the public on bonds. I am pleased to see that all the main players in the bond market have contributed to this first Bond Investment Fair in one way or another, from the banks who are active in Singapore's bond market, to bond fund managers and major issuers in the Singapore dollar bond market, as well as credit rating agencies.
14 The first Singapore Bond Investment Fair will lay the foundations for the development of a deep, well-informed and educated retail investor market in bonds and interest rate instruments. This will in turn contribute to the development of a well-functioning and diversified capital market.