Simons Trading Research

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


Singapore Exchange - Upcoming New Initiatives May Give SGX the Boost It Needs

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  • Singapore Exchange (SGX, SGX:S68) saw improved trading velocity in Aug 21 as volumes remained above pre-pandemic levels. Total futures open interest rose by 3.5% m-o-m, indicating strong risk management demand. There is impending competition with the launch of HKEX’s A- Share Index Futures. SGX revised its guidelines to make Special Purpose Acquisitions Companies (SPAC) more attractive.
  • Maintain HOLD rating on SGX.

Improved Trading Velocity in Aug 21

  • For August, total securities turnover value increased 4.7% m-o-m while securities daily average value (SDAV) improved to S$1.25b (+4.7% m-o-m). Total trading volumes softened slightly by 2% m-o-m, making August the lowest month year-to-date. However, as compared with pre-pandemic levels (Aug 19), total trading volumes are still 10% higher on a y-o-y basis.
  • Derivatives volumes softened m-o-m but are expected to trend upwards. Total derivatives trading volume in Aug 21 dipped 4% m-o-m along with the daily average volume decreasing by 4% m-o-m as well. The m-o-m decreases in derivatives volumes were largely contributed by a normalisation of risk management demand due to an outperformance in Jul 21. Total futures open interest rose by 3.5% m-o-m, indicating strong risk management demand in key Asian economies. Increased uncertainty over China’s recovery and an economic rebound in India resulted in steady y-o-y growths in China A50 Index Futures (+4.4% y-o-y, -5.2% m-o-m) and Nifty 50 Index Futures (+1.5% y-o-y, -4.8% m-o-m) respectively.
  • Trading volumes slightly below expectations. Securities’ daily average trading volumes for Jul 21 (S$1.19b) and Aug 21 (S$1.25) were slightly below our expectations of S$1.28b. However, upcoming initiatives such as SPACS, Temasek’s Anchor Fund @ 65, EDBI’s new growth IPO fund and the upcoming Thailand-Singapore DR Linkage are expected to help boost liquidity with new and exciting technology listings. Total Equity index futures volume of 29.6m for Jul-Aug 21 was slightly ahead of our expectations of 29m. However, looking forward, we expect derivatives volumes to soften slightly given upcoming competition from HKEX’s upcoming A-shares futures on 18 Oct 21.

Forex and Commodity Hedging Outperforms

  • Forex daily contracts traded remain robust (+6.7% y-o-y, -8.0% m-o-m) as price swings and supply-chain disruptions continued to challenge physical markets. SGX’s US$/CNH futures volume rose by +12.0% y-o-y with month-end open interest at a record high. Led by strong growth (+3.8% y-o-y, +11.6% m-o-m) in iron ore derivatives, commodity derivatives’ trading volume grew strongly by 10.0% y-o-y.

Ready for Future Competition

  • As a recap, HKEX is expected to launch its new China A-share index futures contract on 18 Oct 21. SGX’s competing product, China A50 Index Futures, contributes similar success to the China A50 futures.

Giving SPACs a Home in Singapore

  • SGX recently revised its guidelines to make Special Purpose maiden SPAC listing on SGX underperforms, it would ultimately diminish confidence and put a dent in any future plans for subsequent SPAC listings on SGX.

SGX - Valuation & Recommendation

  • No revisions to earnings as we have factored in a loss in China A50 Index Futures volumes in our previous report.
  • Maintain HOLD rating on SGX with A-50 Index Futures launch, which may lead to near-term softness in share price performance.
  • Share price catalyst
    • Secondary listings of foreign-listed entities, success of new market initiatives.
    • Longer-than-expected period of trading volatility.

Source: UOB Kay Hian Research - 29 Sep 2021

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