SGX shows momentum in bid to diversify from equity-trading core

SGX, the operator of Singapore’s stock exchange, has reported solid revenue growth across all of its units for the year to the end of June, showing progress in its efforts to diversify from its core equity operations.

The bourse on Thursday posted a 21 per cent increase in net profit to S$472m ($343m) for the period, with its three units — equities; fixed income, currencies and commodities; and data, connectivity and indices — each registering double-digit growth in revenues.

SGX is trying to build a more balanced platform after years of delistings and low trading volumes squeezed its equity-trading core. This week the Malaysian exchange overtook Singapore’s by capitalisation of all listed companies for the first time in 16 years. The exchanges of Indonesia and Thailand have also edged ahead Singapore, on the same basis.

SGX chief executive Loh Boon Chye, appointed just over five years ago, has said he is trying to create an exchange that is not only somewhere to launch an initial public offering, but also a hub for investors to trade bonds, foreign exchange, commodities and derivatives.

The group suffered a setback in May when its historic regional rival, HKEX Group of Hong Kong, snatched SGX’s derivatives licensing agreements with MSCI, the index provider. The lost business would hit profits by 10-15 per cent in 2021, SGX admitted, and its shares fell by 12 per cent on the day, their biggest one-day decline in a decade. They have not recovered since, and are now trading close to the level of July 2015, when Mr Loh took over.

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Thursday’s results, however, showed signs of SGX starting to replace that lost business. A new derivatives initiative with FTSE International, tracking the Taiwanese stock market, traded more than 10,000 contracts a day in the first week after launching in July, Mr Loh told the Financial Times.

The new product has attracted 50 global customers in less than two weeks, SGX said. “Tell me what other exchanges have been able to do that successfully,” Mr Loh said.

The bourse also plans to expand in the $6.6tn-a-day global foreign exchange market, provided it can “find attractive opportunities,” said Mr Loh. SGX this month acquired the remaining stake in BidFX, a trading venue used by hedge funds and banks, for $128m.

Margaret Yang, strategist at DailyFX, a news and analysis service, said SGX had “done a lot” to pivot away from being a pure equity stock exchange, with its derivatives unit posting double digit annual growth in recent years. “[But] the problem is SGX’s lack of significant IPOs, especially in the tech space,” she said, noting that delistings had sapped the exchange of a lot of its liquidity over the years.

Singapore has been touted as an alternative to Hong Kong given uncertainty over the Chinese territory’s future following the imposition of a sweeping new national security law. But analysts say the loss of the MSCI licence — as well as a swath of blockbuster Chinese technology listings heading to HKEX — underlines the scale of the challenge facing SGX.

Additional reporting by Philip Stafford in London



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