IN SOME ways, the waning fortunes of the Singapore stock market flag a serious concern - investors' growing angst over a business model which allows outsiders to invest in a company by buying its publicly-traded shares.
Investors' fears that their fortunes would be wiped out by the falling market have caused the total value of listed companies to fall by a staggering $419billion over the past 11 months to $379.1billion, as they fled the stock market.
This has affected valuations of the Singapore Exchange (SGX) as well.
At the height of the super-bull market last year, it was worth a cool $18.4billion. Now, it is worth only about $5.7billion.
Getting an SGX listing used to be a rite of passage for entrepreneurs - a visible symbol of the success achieved in their businesses.
And SGX membership has its privileges. It has turned business folk like Ms Olivia Lum of Hyflux and Mr Chew Hua Seng of Raffles Education into millionaires many times over, following the rich valuations given to their firms when they were listed.
This may no longer be true. In the fourth quarter of this year, only two firms were successfully floated on the SGX.
It is also a far cry from the 21 new listings recorded in the same period last year.
To get a handle on investors' anxiety about putting money into listed firms, let's try to understand why share prices have taken such a beating this year.
For many investors, the big rout started in late August when even bank preference shares - previously considered to be 100per cent safe - took a beating, after holders of similar instruments were wiped out when the US government bailed out mortgage lenders Fannie Mae and Freddie Mac.
Preference shares pay a fixed dividend without giving the holders any voting rights.
Those issued by OCBC Bank and United Overseas Bank earlier this year fell between 10per cent and 15per cent below their par values.
The following month, even corporate bond-holders were hit, after the collapse of Lehman Brothers cleaned out holders of any form of financial instruments issued by it.
Bonds issued by plantation giant Wilmar International and commodities trading firm Olam International fell way below their respective issue prices.
Small-capitalised stocks fared even worse on fears that many of them may go bust, as banks tightened their credit lines.
Since September, the FTSE ST Small Cap Index has gone down 43per cent, while the FTSE ST China Index has plunged 44per cent.
Still, investors could be forgiven for taking a dim view of the equities market and asking what wrong they committed to deserve such a harsh punishment, as their wealth was wiped out.
They had put up their capital in good faith and had expected to get a reasonable return for the risks they were taking.
It was not as if they were taking wanton risks, like making wild bets in a casino.
But the sad truth is that the rout in the stock market is likely to make investors more cynical about the wisdom of investing in a publicly-listed firm.
In some firms, where the founder is in charge, management behaves like the business is still privately-owned. In others, the shareholding structure is so fragmented that no shareholder has control. This allows hired hands to rule the roost.
There are those who believe fund managers should take the lead in keeping managements on their toes.
The fact is that these busy people probably meet executive directors once or twice a year for an hour or so, to try to understand what is going on.
Too often, they judge managements based on their ability to make a presentation and not on their true skills as leaders.
And top fund managers invest in 100 firms or more. They cannot be expected to have a real insight into all of them.
If things fall apart, investors cling to the perhaps naive belief that independent directors can come to their rescue.
This begs another question: Do the non-executive directors really understand what is going on? Sometimes, they meet once a month for only a few hours at most. Mostly, they are paid to conform.
Despite checks put in place over the years, it is not surprising to find that corporate scandals still abound - Informatics, China Aviation Oil, Citiraya Industries and Accord Customer Care Solutions, to name a few.
As the credit crunch crisis bites into all sectors of the economy, managements in many listed firms will be sorely tried and tested in their efforts to keep their businesses afloat, as banks tighten their lending criteria. Some will be found wanting.
China steel coil-maker Ferrochina provided a foretaste of what may be in the offing when it suddenly collapsed in October, just weeks after it reported second-quarter profit had tripled to 230million yuan (S$49million).
But some good will come out of all this financial turmoil.
The pain inflicted upon investors is so great that it will run deep in their memories.
In future, they will be more likely to treat each sexy story thrown up in the stock market with much more scepticism.
They will look past the glib tongues of publicity-seeking bosses for marks of true leadership and weigh the businesses for what they are really worth.
For prudent investors, there will be rich pickings in the stock market as the credit crunch sieves out the wheat from the chaff.
To paraphrase Roman philosopher Seneca: Fire is the test of gold; adversity, of strong men - and of strong companies.
This article was first published in The Straits Times on December 22, 2008.
