SINGAPORE (Mar 13): Singapore Exchange is benefiting from the frenzied buying and selling of assets that the coronavirus outbreak has triggered.
The bourse, which allows the exchange of products from Singaporean shares to FTSE China A50 Index and currency futures, saw its securities market’s trading surge 44% to $27.5 billion in February from the same period a year ago. Derivatives volume hit a record 1.24 million contracts, it said on March 9.
That’s led brokerages including Credit Suisse Group AG, Citigroup Inc. and CGS-CIMB Securities International Pte. to upgrade Singapore Exchange shares this month, touting the Southeast Asian venue as a key beneficiary of market volatility.
“SGX’s velocity has a positive correlation with volatility,” Credit Suisse analysts wrote in a note on Tuesday, raising the shares to neutral from underperform. The stock has held up better during the current rout -- it’s the third-best performer in the Straits Times Index this year.
The continued uncertainty over the coronavirus impact is causing massive swings in markets, boosting trading across the globe. Like Singapore Exchange, JPMorgan Chase & Co. and Citigroup Inc. are among those that have said they benefited from the frantic dealings, highlighting the revenue boost from equity derivatives.
Derivatives trading accounted for half of Singapore Exchange’s 2019 revenue, data compiled by Bloomberg show. In February, futures on the Indian rupee and on Nikkei 225 Stock Average were the most popular, the bourse said March 9. It also highlighted the surge in volume for exchange-traded funds, which jumped 245% from a year ago to $356 million in value, with that of gold and bond ETFs up by six times.
“The uncertainties have driven demand for risk management in equities, FX and commodities,” an exchange spokesperson said. According to this week’s statement, there was a “surge in participation outside of Asian time zones,” underscoring growing demand from Europe and the U.S.
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Citigroup and CIMB both upgraded Singapore Exchange to the equivalent of a buy rating. The U.S. bank said the current volatility is likely to help not only the bourse’s equity-index products, but also “newer growth engines” such as forex and higher-margin commodities derivatives, while CIMB called the stock a “safer haven.”
Still, Singapore Exchange shares have suffered too. They’ve lost almost 7% from a high in February, and only five brokerages recommend buying them, compared with six holds and four sells, according to data compiled by Bloomberg.
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But the bulls point to encouraging trends even for other parts of the exchange’s business. The bourse acquired in January a majority stake in Scientific Beta Pte., an index provider that specializes in factor-based strategies, and Credit Suisse sees revenue doubling for the unit’s data, connectivity and index business in the next five years.
In the meantime, “we expect the momentum in both derivatives and securities to remain strong,” the analysts wrote.
