The financial institutions did well yesterday, with OCBC and UOB as the market leaders in the STI. The index added 0.8% for the day with OCBC (+0.8%, $9.87) and UOB (+0.9%, $18.80) trading in line. DBS fell behind, gaining only 0.4% for the day.

Macquarie’s SGX warrants

SGX focus on bonds
However, SGX outperformed the local banks and posted a 1.7% jump for the day. Looking back, SGX has been on a continuous uptrend since 19 November when its share price closed at $6.50. Compared to yesterday’s close of $7.83, SGX has rallied 20.5% in less than eleven weeks. The benchmark index had furthered 11.4% for the same period of time.

The rally came after SGX announced that it is looking to become a venue for infrastructure bonds. According to data compiled by Bloomberg News, local currency debt issuance in Singapore reached a record S$30.7 bil as at 16 November. This beats the annual high of S$24.7 bil in 2010.

SGX’s President Muthukrishnan Ramaswami said in an interview with Bloomberg that “there has to be bond fundraising in Indonesia, Malaysia and India. Those will come here as long as they look for cross-border investors. We’re working towards that.” He attributes his confidence to the country’s developed infrastructure.

IPO slumps
The change in business focus is due to the slump in initial public offerings which threatens earnings. While IPOs declined since 2008, SGX’s annual profit has also taken the hit, according to data complied by Bloomberg News.

SGX announced their 2Q2012 results last Tuesday, recording a revenue of S$162 million and a net profit of S$76 million. CEO Magnus Bocker is pleased with the result and mentioned that the “securities market continued to hold up from the first quarter and daily traded value increased 8% year-on-year (yoy). SGX’s derivatives market achieved a record quarter with daily average traded volume of 358,532 contracts, following record volumes in China A50 futures and Japan Nikkei 225 options. Open interest on the derivatives market hit a new high, reflecting SGX’s attractiveness as a centre for risk management”.

Going forward, SGX will continue to invest resources in developing new products and services and strengthening its regulatory and risk management capabilities. If sentiments across capital markets continue to improve, the company is confident that it is well positioned.

SGX gained 3.8% in six days after their announcement of results and did better than the STI which added 2.1% over the same period of time.

Source: Macquarie Research - 31 Jan 2013