Plans are afoot to reinvent the Singapore Exchange (SGX) into a one-stop shop for people seeking to bet on Asia’s growth prospects by investing in an asset of their choice.
“Liquidity begets liquidity,” SGX CEO Loh Boon Chye told The Straits Times, referring to an old market axiom which means investors will seek to trade wherever they think they will find higher transaction volumes, ease of access and an interconnected financial ecosystem.
Singapore is already recognised for its business-friendly regulatory framework and as a financial services hub.
The SGX has taken full advantage of that, turning itself into an international listing venue offering global investors exposure to Asia, despite being in a small country with a weak domestic pipeline for initial public offerings (IPOs).
Over 40 per cent of the SGX’s equity market capitalisation comes from non-Singapore companies.
The exchange has also cemented its position as Asia’s largest and fastest-growing foreign currency market, with double-digit compounded growth in volume over the last three years.
International debt securities and bond listings are another string to its bow, with over 6,600 listed debt securities by more than 1,600 issuers from 66 countries comprising issuance of over $2.2 trillion in 26 currencies.
It is also one of the world’s most liquid markets for commodity futures, like the Iron Ore Options contract that has seen a surge in trading volumes in recent years.
However, with only 710 listed entities – compared with 2,449 on the Hong Kong Exchange – trading volume growth has been hard to come by. That is where the multi-asset exchange strategy helps.
Combining the cash and derivatives trade of multiple assets on a single platform will increase participation from more market-makers and boost trading activity, Loh said in the interview last week.
He said: “Yes, you cannot ignore size. But I think scale is not just size. It means reach, openness, variety of asset classes.
“I think more importantly for Singapore as a financial market – we are truly trusted, neutral, internationally recognised.
“Two, as a financial centre, we have different segments like capital markets, corporate banking, asset management, wealth management and fintech.”
He conceded the cash equity market has not grown as fast as the SGX wanted. But the derivatives market and real estate investment trust sector are creating the depth needed to boost overall trading activity.
“We want to ensure we have a trusted and efficient international marketplace that connects the world to Asia, enabling capital raising, investing and risk management, so the build-up of the other asset classes will be important,” Loh said.
He believes the SGX is now the choice destination for long-term passive investors who believe that Asia will continue to grow faster than the rest of the world.
“Having the highest number of IPOs is not the only gauge of success,” he said, adding that the SGX now offers investors a range of products in different asset classes to express their view on Asia.
For instance, investors can buy SGX FTSE China A50 Index Futures, the world’s only US dollar-denominated futures, offering them an efficient way to access China’s A-shares – stocks in mainland firms available to citizens or licensed international investors.
They can back their faith in China’s economic growth by taking positions in the Iron Ore CFR China swaps, futures and options.
If an investor wants to hedge his investments in a country in the region, the SGX offers a suite of futures and options contracts across major currencies, including the Singapore and Australian dollars, Chinese renminbi, Indian rupee, euro, Japanese yen, Korean won and Thai baht.
THE STRAITS TIMES (SINGAPORE)/ASIA NEWS NETWORK