STOCK EXCHANGE OF SINGAPORE (Government intervention)

Mr Chiam See Tong asked the Minister for Finance whether the Government has any intention to intervene in the local stock exchange, especially in relation to shares of companies which were first sold by the Government to the public who in turn bought those shares based on their confidence in the value of those shares held out by the Government to them.

Dr Richard Hu Tsu Tau: Mr Deputy Speaker, Sir, I do not know what the Member for Potong Pasir has in mind when he says "intervene". If he is asking whether the Government will prop up the local stock market, the answer is "no". I should point out that there are now substantial foreign investors in local shares, including those sold by the Government to the public, and any attempt by the Government to support the market will merely encourage speculation in these shares by both local and foreign investors.

The Member for Potong Pasir seems to suggest in his question that the Government has an obligation to buy back shares that were sold to the public under its privatization programme, now that the shares have fallen in value. The Government does not have such a one-sided obligation. The original issue prices of shares in Government-owned companies were fixed at levels which would give investors a fair return on their investments, based on the companies' track records and future prospects. The prices of many of these shares rose substantially after issue due to strong investor sentiment and many purchasers made handsome profits when they resold the shares before the market crashed. Those who entered the market late and did not sell their shares before the market crashed were never encouraged or persuaded by the Government to buy. In fact, the Government had on more than one occasion reminded the public that investments in stocks and shares carried risks, particularly when prices paid for shares were well out of line of the fundamentals.

Mr Chiam See Tong: I believe the Minister has not really looked at my question properly. I believe the Government must surely have a responsibility, as in the case of the SIA shares, when the Government sold them, I believe, at $13 or thereabout. Surely the Government must give the public some confidence ---

Mr Deputy Speaker: Mr Chiam, can you ask your question?

Mr Chiam See Tong: Will the Minister please tell us whether or not the Government has a responsibility in regard to the higher value of the shares in SIA which were sold at $13?

Dr Richard Hu Tsu Tau: Mr Deputy Speaker, Sir, I understand the Member for Potong Pasir's question quite clearly. But what he has failed to do is to understand my reply.

There is no obligation on the part of Government, even on the second tranche sale of shares of SIA at $13. When the second tranche of SIA shares were issued at $13, the returns on those shares at that price were considered quite attractive. In fact, there was a very large demand not only from local investors but also from foreign investors. So on the basis or principle that shares are issued at what SIA considers to be fair prices based on their potential earning power, I see no reason why, just because for the moment the shares have declined, in value, there should be a bail-out.

Mr Chiam See Tong: Is it not true that when the Government issues a share, the Government is holding itself out and telling the public that the value of the share is that price? Is it not so? Otherwise the confidence of the Government will go.

Dr Richard Hu Tsu Tau: Indeed that is the case. The suggestion seems to be that if ---

Mr Chiam See Tong: Nobody will believe the Government anymore.

Dr Richard Hu Tsu Tau: I think investors know very well what they are doing and not the Member for Potong Pasir. The implication is that if the shares fall in price, Government should buy them back. If they rise in price, the buyers should retain the profit. Is that the implication?

Mr Chiam See Tong: That is not the issue.

Dr Richard Hu Tsu Tau: That is indeed what you are suggesting.

Mr Chiam See Tong: That is not the issue. The issue here is the holding out of the Government. It tells the public that when I back the price of a share at a certain price, there is a value of that share at that price. But it does not appear so now. That is what the issue is all about.

An hon. Member: Give him a primer on stockbroking.

Dr Richard Hu Tsu Tau: Yes. I was just going to say that. I suggest that the Member for Potong Pasir should perhaps come for a short seminar at the Ministry of Finance and we will set him right.

Mr Chiam See Tong: Let's arrange for it now.