Highlights

Simons Trading Research

Author: simonsg   |   Latest post: Wed, 18 May 2022, 11:34 AM

 

Singapore Exchange - Competition Looms

Author:   |    Publish date:


  • HKEX recently announced the launch of a new MSCI A share index futures contract which is the direct competitor to SGX’s FTSE A50 index. While the FTSE A50 index has a relatively large turnover volume, the group’s multi-asset suite of product offerings could allow for customer stickiness while we also note that HKEX’s previous MSCI product launches have been fairly lacklustre.
  • Maintain HOLD with a target price of S$11.65.

Hong Kong Exchanges and Clearing Limited (HKEX) Launches New MSCI a Share Index Futures Contract

  • HKEX (388 HK) announced that it will launch a new China A- share index futures contract – on 18 Oct 21, with licensing from MSCI. This is a futures contract based on the performance of 50 key Shanghai and Shenzhen stocks and is the direct offshore competitor to Singapore Exchange (SGX, SGX:S68)’s FTSE A50 derivatives contract.

FTSE A50 futures with a relatively sizeable volume.

  • SGX’s FTSE A50 index futures have a daily traded value of US$7b with open interest of US$12b. Investors are able to hedge their positions in the Chinese markets by taking a position on the index futures. In FY21, FTSE A50 index futures accounted for approximately 52% of SGX’s equities derivatives volume traded. As the equities derivatives segment forms about 27% of the group’s revenue contribution in FY21, this suggests FTSE A50 has a revenue impact of 10-15% for SGX.
  • Average fee per contract for SGX’s equity, currency and commodity derivatives came in at S$1.34 in FY21, in which there were introductory fees for FTSE Asia expansion suite (eg. FTSE Taiwan Index). We opine that introductory fees were implemented during a competitive phase with HKEX (when HKEX was launching its MSCI Taiwan index futures).

Stock Impact

  • Assessing HKEX’s MSCI derivative China. Since HKEX’s launch of Stock Connect in 2014, it has been the key channel for international investors to access the A-shares market. Northbound average value traded has increased to RMB118b in 2021, growing at a CAGR of 72% since 2015. This is in line with the higher market capitalisation weightage of Chinese counters in the MSCI Emerging Markets Index. Ultimately, an A- shares derivative offering in the primary A-shares exchange in HKEX will put forth a challenge to SGX’s FTSE A50 volumes.

Earnings Revision & Risk

  • Recent volatility still a boost for FTSE A50. Recent volatility in the Chinese markets will likely still be a near-term boost. In Jul 21, FTSE A50 volume traded rose 20% m-o-m. A sensitivity analysis of the change in FTSE A50 volumes and contract fees is detailed in report attached below.

Valuation & Recommendation

  • Maintain HOLD with a target price of S$11.65. Our target could re-rate SGX alongside peers.
  • On a DDM basis (ROE: 30%, COE: 7%, growth: 4%), SGX's share price would trade at close to S$12.15, or an implied P/E of 30x FY22F earnings.

Share Price Catalyst

  • Secondary listings of foreign-listed entities.
  • Longer-than-expected period of trading volatility.
  • M&As.

Source: UOB Kay Hian Research - 26 Aug 2021

Share this
Labels: SGX

Related Stocks

Chart Stock Name Last Change Volume 
SGX 9.84 -0.08 (0.81%) 1,304,700 

  Be the first to like this.
 


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
 
 

136  253  193  596 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 Sembcorp Marine 0.106+0.003 
 YZJ Fin Hldg 0.475+0.04 
 Jiutian Chemical 0.11-0.001 
 AA 0.014-0.003 
 HSI 21400MBeC.. 0.058-0.017 
 Parkson Retail 0.049+0.004 
 Dyna-Mac 0.15+0.003 
 HSI 18200MBeP.. 0.061+0.009 
 Tritech 0.037+0.002 
 Genting Sing 0.78-0.01 
PARTNERS & BROKERS