Singapore Exchange - CGS-CIMB Research 2021-05-10: Calming Down


Singapore Exchange - Calming Down

  • Market exuberance took a breather in Apr 21, with SGX's SDAV dipping 24% m-o-m to S$1.3bn. Derivative volume fell 24% m-o-m in Apr 21 to 17.5m contracts.
  • Equity index futures volumes dipped across the board, but open interest of SGX’s FTSE Taiwan Index Futures continued to grow steadily.
  • Reiterate ADD. Notwithstanding the softer market activity in Apr 21, SGX's trading volumes are tracking well to our estimated SDAV of S$1.3bn in FY21F.

Market exuberance moderating; SDAV slipped 9% y-o-y in Apr 21

  • SGX (SGX:S68)’s SDAV slipped 9% y-o-y to S$1.3bn in Apr 21, coming off 1QCY21’s average S$1.5bn and Mar 21’s S$1.7bn (-24% m-o-m), as market exuberance from higher US treasury bond yields, fiscal stimulus and COVID-19 vaccination drives moderate.
  • Total derivative volume was 5% higher y-o-y, at 17.5m contracts, but down from an eight-month high of 23.2m contracts in Mar 21 (-24% m-o-m). The m-o-m decline was broad-based, spanning the Nikkei, Nifty and, China A50 equity index futures to interest rates (-78% m-o-m), foreign exchange (FX) futures (-23% m-o-m), and, AsiaClear (oil and commodities) futures (-19% m-o-m).
  • The y-o-y volume increase was driven by a rise in FX futures as SGX's US$/S$ Futures reached a single-day record high of 10.5k contracts, while INR/US$ increased even as a secondary market government security acquisition programme by the Reserve Bank of India fueled a decline in volatility.

We expect stronger clearing fees to sustain as fee holiday tapers

  • While trading volumes of SGX’s FTSE Taiwan Index declined in step with equity index futures listings (-16% m-o-m), open interest of this index continued to gain momentum, rising 10% m-o-m to 122k contracts in Apr 21 (vs. HKEX MSCI Taiwan futures -3% m-o-m to 21k). This is an encouraging signal in supporting SGX’s clearing fees in coming quarters, in tandem with the expiry of lower introductory fees for the SGX FTSE Asia expansion suite in 3QFY6/21.
  • To note, the bourse reported stronger average clearing fees from its equity, currency, and commodities derivatives segment of S$1.38 per contract (from S$1.16 in 2QFY6/21 and S$1.33 in FY20). Meanwhile, average securities clearing fees held steady at S$2.68 per contract in 3QFY6/21 (S$2.69 in 2QFY6/21 and FY20).

Reiterate ADD; SDAV tracking well against expectations

  • Notwithstanding the weaker equity turnover in Apr 21, SGX's monthly average SDAV tracks well within our S$1.3bn estimate for FY21F, although those of derivatives remain below our projection of 261m contracts.
  • While we believe that buoyant market sentiment and prolonged COVID-19-related movement restriction orders will sustain trading momentum, potential secondary listings of Grab and Sea Ltd on SGX (per news reports) could further boost volumes. On this note, SGX is currently seeking market consultation on the listing of special purpose acquisition companies (SPACs) in Singapore, the successful implementation of which may propel it to become a regional SPAC hub, potentially diverting IPO interest into the city state from regional leader, Hong Kong.
  • Our SGX's target price of S$11.61 pegged to 25x FY22F P/E, 0.5 standard deviation above its long-term mean.
  • See

Andrea CHOONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-10
SGX Stock Analyst Report ADD MAINTAIN ADD 11.610 SAME 11.610