IT didn't seem so at the time, but the collapse a year ago of blue-chip Pan-Electric Industries may have been just what the Singapore Stock Exchange needed in order to grow. When the Straits Times industrial index reached a 26-month high of 940 points early last month, amid discussion of how soon it would break through the 1,000 barrier, the traumatic events of late 1985 seemed to belong to another era.
Local and foreign investor confidence appears to have been fully restored, and the talk now is how quickly the exchange can expand to meet new needs, including the opening shortly of a separate ``junior market'' for young, innovative companies in need of funds for expansion.
Pan-El, which was primarily a refrigeratormaker and ship salvager, went bust in spectacular fashion with debts of more than $200 million, bringing down several local stock brokerages that were caught up in a complex web of forward share-purchasing contracts exceeding $300 million in value.
The result was a three-day closure of the Singapore and Kuala Lumpur exchanges, which are closely linked with about 60 percent of share issues mutually traded. Many investors were hurt, and Singapore's ambitions to become the region's premier financial center appeared to have taken a severe blow.
Millions of dollars were wiped off share values on the two markets. Nearly half of Singapore's 25 brokerages were caught up in the crisis, five eventually going under, while a sixth remains on the troubled list, closely watched by the governing Stock Exchange of Singapore.
The Pan-El crisis could not have occurred at a worse time. Singapore was then in the midst of its first serious recession since achieving full independence in 1965. Inexperience, even an element of panic, perhaps made it worse than it should have been.
The combination of recession and scandal resulted in the exchange suffering its worst-ever result - a reported after-tax loss of 4.48 million Singapore dollars in the financial year ending last June, compared with a profit of S$844,850 in 1985.
But out of the various shocks has come a great deal of good. Responding to lessons learned, Singapore's Parliament earlier this year passed two broad laws regulating the financial futures market and the securities industry.
The Monetary Authority of Singapore - the quasi-central bank - has now taken over full control of the market with sweeping investigative and punitive powers. The authority in mid-November installed a new stock exchange management committee made up of four elected brokers, four nominated bankers, and a lawyer. It is headed by Tan Chok Kian, an exchange governor and chief executive officer of the government's Central Provident Fund.
Joseph Pillay, managing director of the monetary authority, said he believed that having a non-broker as chairman would inspire greater investor confidence. He would be seen by the public as impartial and without self-serving interests, particularly in the enforcement of exchange discipline.
The Singapore exchange is the third-largest stock market in Asia after Tokyo and Hong Kong. It has 317 listed companies, with a market capitalization of S$78.5 billion (US$35.3 billion).
The market is volatile. ``It's been a bit of a casino so far,'' an American broker says. ``For a long time now the market has been overrunning the fundamentals by a long way.''
Lack of volume has held it back to some extent, too, but there are signs that overseas fund managers, particularly in London and in the major United States financial centers, are showing renewed interest in the Singapore market - especially now that the government says the city state's economy is well on the road to recovery.
Goldman, Sachs & Co. has predicted that American involvement in the Singapore and Malaysian markets could easily double or triple over the next few months.
The firm, which was heavily involved in the Singapore Airlines share issue in the US before the airline's flotation late last year, reckons that shares in such public bodies as the Mass Rapid Transit Authority - now developing Singapore's first underground railway system - and the Public Utilities Board would be eagerly sought by international investors if the government decides they can be privatized.
Paul Ma, an accountant, believes more investable funds will flow into Singapore as foreign investors become more familiar with the local market and as ownership of local brokerages is opened up to foreigners. He says one dampener on an active market is the lack of mergers and acquisitions, due mainly to a dearth of attractive propositions.
The market is also being helped by government attempts to encourage the Singapore public to invest. Earlier this year, the rules governing compulsory saving in the Central Provident Fund were changed to allow members with more than S$30,000 to use 20 percent of the excess for investment in a range of 71 carefully selected domestic ``trustee'' stocks.
On Nov. 1, a further relaxation allowed up to 40 percent to be used, freeing, in theory, an estimated S$4.8 billion (US$2.2 billion) for investment. Little of this has yet materialized, but analysts reckon if this cash source can be tapped, it will boost market activity and make Singapore trading more attractive for foreign investors.
Another innovation will be the launching shortly of the ``junior'' stock market, which will allow small and medium-size companies to obtain an exchange listing that would otherwise be denied them under existing rules. They will be involved in the new computer network known as the Stock Exchange of Singapore Dealing and Automated Quotation System (SESDAQ), modeled on the American NASDAQ market.
Companies seeking SESDAQ listing won't have to meet any paid-up capital requirement and will not need to have a history of profitability. Another difference is that they will be able to reserve a quarter of their shares for their staff, compared with 10 percent for those on the main board.
Reconstruction efforts are also under way in Kuala Lumpur, where the recovery of the market has been slower because of the poor performance of Malaysia's key export commodities. The government has been trying to develop brokerage expertise by encouraging small local firms to take on partners - such as banks or large corporations - to help expand their capital base and encourage the inflow of foreign funds.
Analysts say the problem in Kuala Lumpur in particular has been a tendency among investors to use the market for speculation rather than for longer-term investment.
Both the Singapore and Malaysian governments, and the respective stock exchanges, want to discourage this practice so as to provide a sounder base for operations.