RHB Bank Singapore S68 analyst Shekhar Jaiswal is maintaining “neutral” on Singapore Exchange (SGX) with a target price of $10.30 on the back of below-estimate securities turnover and securities daily average value (SDAV).
For the month of August, SGX’s securities total market turnover and SDAV came in at $23.6 billion and $1.1 billion respectively, both 3% lower y-o-y.
The Straits Times Index fell 4.2% m-o-m in August, a month that was heavy on dividends as more than 100 stocks went ex-dividend.
For the first eight months of 2024, the STI’s total return stands at 3.8%.
The year-to-date securities market turnover value and SDAV for FY2024 are tracking 6% and 4% above the numbers for the same period in FY2023. However, the implied FY2024 SDAV — based on data through August — is 6.5% below RHB’s estimate.
During the month, the SGX witnessed a strong rise in derivatives volume as more international investors turned to managing risk amid China’s efforts to boost its economic recovery and uncertainties around the outlook for interest rates.
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Derivatives traded volume increased 16% in August on both a y-o-y and m-o-m basis to 23.7 million contracts, with broad-based gains across equities, foreign exchange (FX), and commodities. Derivatives daily average volume (DDAV) came in at 1 million contracts, up 16% y-o-y.
Total FX futures traded volume rose 26% m-o-m in August to 4.2 million contracts, an all-time high. Commodity derivatives traded volume rose 52% y-o-y in August to 5 million contracts, also an all-time high.
The year-to-date derivatives traded volumes and DDAV for FY2024 are tracking 8% and 5% above the numbers for the same period in FY2023. The implied FY2024 DDAV — based on data through August — is in line with RHB’s estimate.
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Moving forward, fixed income, currencies and commodities will remain key growth drivers for SGX over RHB’s forecast years. “Given the uncertain macroeconomic outlook and likelihood of an eventual decline in interest rates, the near-term growth outlook could see downside risk,” says Jaiswal.
Although the SGX is guiding to deliver a mid single-digit percentage compound annual growth rate in its dividend per share over the medium term, its yield is well below market yield, Jaiswal pointed out.
“Macroeconomic uncertainty will weigh on new IPO listings and cash equity trading volume. We expect a dip in treasury income amidst an eventual fall in interest rates.
“We view the current valuation as fair,” he adds.
As at 2.08pm, shares in SGX are trading 7 cents higher or 0.71% up at $9.91 on Sept 15.
