The share price for the Singapore Exchange (SGX) fell from a record high of $12.05 attained on Aug 4 to as low as $10.21 on Aug 26, following news that Hong Kong Exchange (HKEX) plans to launch a new MSCI A share index futures contract which is the direct competitor to SGX’s FTSE A50 index.
As The Edge Singapore has pointed out in its Issue 989 in our story Multi-Asset Ambitions, the operating and net profit margins of both SGX and HKEX are hefty, as are their ROE. Exchanges are mainly fee-based businesses and fees are usually viewed as annuity-type returns for investors because of their stability and — as in the case of SGX and HKEX — their growth although both exchanges are taking very different paths to get there.
Competition for one of SGX’s derivative products is not going to move the needle too much. Some market players may decide to stay with the FTSE A50 Index here, including perhaps mainland Chinese retail or high net worth investors. Of course, the new MSCI futures contract is about China’s stock index futures, and Hong Kong is China’s Special Administrative Region (SAR). And by all accounts, Hong Kong is growing politically closer to China. So the volume may eventually end up in Hong Kong.
Technically, the SGX is in somewhat the same position the Chinese tech stocks were about 10-trading sessions ago. SGX stock is oversold, its share price is testing its 200-day moving average (currently at $10.19) and it is near an old resistance area which is likely to provide support. Yes, volume expanded on the selldown, and is likely to contract as prices rebound. Typically, prices are likely to move sideways after the rebound. This could give a chance for cooler minds to rethink their positions on the stock. The immediate rebound high is likely to be at the $10.80 to $11 range. The recent sharp decline has not changed the long term trajectory of SGX’s price trend.
Technically, iFAST Corp’s chart pattern does not look great. Its 50-day moving average had been breached and whipsawed since early August. In addition, very clear medium term negative divergences have materialised between prices and the smoothed RSI. RSI has not definitively broken down, but the indicator’s rebounds are getting weaker, and it is spending more time below its equilibrium line. Its pattern indicates that iFAST’s share price is also getting weaker.
Despite the appearance of a developing top formation on the price chart, prices have not breached the neckline of the chart pattern at $8.11 or thereabouts. A break below this level would indicate a downside objective. In the short term, prices are attempting a rebound for which resistance appears at $8.76.
iFAST’s 2QFY2021 results did not meet expectations, when it reported a 20% q-o-q drop in earnings, the first dip since 1QFY2019. However, mindful of its share price dip, iFAST announced on July 31 that it has finalised its prime subcontractor contract with PCCW Solutions for Hong Kong’s electronic Mandatory Provident Fund Platform (eMPF) project. iFAST’s service agreement with PCCW entails a seven-year maintenance period from FY2023. CGS-CIMB, which had downgraded the stock to neutral after its results, upgraded it following this announcement.
When queried by the SGX on its trading volume, iFAST said it had applied for a digital bank licence in Malaysia. While this is well and good, regulatory capital and liquidity may require iFAST to hold more capital than it currently does. Whether iFAST is awarded a licence, and this involves equity fund raising, remains to be seen
