Benefit From Elevated Volatility Not Expected to Persist for Singapore Exchange

For the foreseeable future, we expect Singapore Exchange to focus on maintaining or reclaiming its status as a regional financial hub in a deglobalizing world. Singapore is a small city-state, which by itself would arguably be too small to run a very profitable exchange business. Therefore, Singapore and SGX have had to focus outward to broaden their catchment zone for business. Singapore offers foreign companies a strong legal system, business-friendly climate, mature financial ecosystem with sector expertise in REITs, and an outsize pool of domestic capital that needs to be deployed. As a result, the number of foreign companies listed on SGX accounts for around 40% of total listings, which is at multiples higher than at peer exchanges. It has become the dominant venue for some of the most liquid and widely traded equity derivatives products for various regional markets, including the FTSE China A50 Index Futures and the Indian Nifty 50 Index Futures. However, over the past decade, SGX has faced increasing competition from Hong Kong Exchanges and Clearing, or HKEx, and the development of a native financial ecosystem in China, through the Shanghai Stock Exchange and the Shenzhen Stock Exchange. As a result, there has been a dearth of new listings on SGX, with only a minor pickup recently, ultimately affecting the long tail of trading and clearing business. Additionally, HKEx has launched competing derivatives products to SGX’s FTSE China A50 Index Futures, and the Indian government has transferred the Nifty 50 Index Futures market to Indian exchanges. Our outlook is for no improvement to SGX’s listings business, but for SGX’s derivatives business to maintain its regional status.