SINGAPORE (Apr 13): Jefferies is reiterating its "buy" on Singapore Exchange given optimistic market sentiment and bouts of volatility have improved securities and derivative volumes.
For the financial year ended March, securities traded value is up 11.5%, derivatives trading volume is up 22% while period-end open interest is up 9.5% y-o-y.
SGX offers a dividend yield of 4% derived from unlevered operating cashflows and FactSet consensus earnings are expected to grow 9.5% and 5.7% for FY18 and FY19 respectively.
SGX announced its plan to list new India equity derivative products in June to provide investors access and tools to hedge exposure in Indian capital markets. The launch is before the August timeline and will enable market participants to seamlessly transition their current India risk management exposures.
See: Singapore Exchange to list new India equity derivative products in June
See: India's NSE seeks SGX to delay stock futures
See: Singapore Exchange seeks to defuse tensions over National Stock Exchange of India in futures dispute
In a Thursday report, analyst Krishna Guha says this is likely to mitigate concerns on earnings impact from current suite of products which are likely to phase out, earliest by August.
The exchange also announced that work is ongoing to evaluate a joint trading and clearing model in Gujarat International Finance Tech (GIFT) city between the National Stock Exchange of India (NSE) and SGX to meet the risk management needs of international participants.
While implementation is not feasible before Aug expiry of the licence agreement with NSE, SGX remains committed to engagements with NSE and other relevant stakeholders in India towards a collaboration in GIFT city.
Currently, SGX has three derivative product suites that offer investors access to Indian markets, namely futures and options linked to SGX Nifty and its various sub classes, futures and options linked to MSCI India, and futures linked to Indian single stocks. The Nifty suite of products will be impacted by the expiry of the licence agreement with NSE.
"We had estimated earnings to be impacted mid to high single digits in the absence of any complementary products," says Guha.
To the extent that the new product suite enables investors to seamlessly transition their current India risk management exposures, Guha expects earnings impact to be mitigated.
That said, he does notice a decline in open interest of SGX Nifty front month futures -- daily open interest has declined from average 380,000 contracts to 314,000 contracts.
While it may be attributed to prevailing uncertainty related to the product suite, it may also be due to outlook of India's equity market, currency, their correlation or risk appetite.
"We will keep an eye if open interest recovers after the new product launch," says Guha.
Shares in SGX closed 10 cents higher at $7.47 on Friday.
