If things is not bad in the Singapore market, it's worse now for most of the blue chips as a major and heavy drop in SGX today with 12% down. There was some bad news today from the stock but more importantly, the chart has some profit taking past few days and suddenly, sellers came in to take control. The rebound and the effort for the past few months were all wasted in today's drop. As I kept saying that I won't be trading Singapore stocks and no investments on it, it's currently showing signs of fatigue. Read the below bad news which caused the price to drop.
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*SGX - Loss of MSCI equity derivatives ex SG to HKEx to dent derivatives business*
Maybank KE Retail Research
SGX is letting its licence agreement with global index publisher MSCI, other than for MSCI Singapore index products, expire in Feb '21 after losing it to Hong Kong Stock Exchange.
However, MSCI Singapore futures and options will remain listed on SGX. The parties will both work to extend this partnership well beyond 2021.
The group will work closely with the relevant stakeholders in managing their open interest as it gradually discontinues its MSCI equity index futures and options contracts, except for MSCI Singapore, next year.
According to management, there could have a near-term impact on its equities derivatives business as MSCI contracts (comprising MSCI Taiwan, MSCI Indonesia, MSCI Net Total Return) constitute ~15% of equity derivatives daily average volume (DAV) and ~12% of total derivatives DAV.
On a 12-month pro forma basis, this translates to a 10-15% dent on FY21 earnings before any mitigating action. Overall, equity derivatives accounted for 36% of SGX's 3QFY20 group revenue.
While the exchange's multi-asset portfolio shelf has reached a critical mass, it will continue to broaden and deepen coverage of Asia by developing more derivatives products on its own or in collaboration with partners.
Earlier this month, it entered into a long-term strategic partnership with AMTD Int'l to promote the development of Singapore’s capital markets and strengthen connectivity between ASEAN, the Greater Bay Area, the rest of China and the Middle East.
In Apr, it signed a wide-ranging strategic cooperation with China’s CITIC Securities to collaborate across in fixed income, currencies and commodities, REITs as well as equity, debt capital markets.
Overall, we believe this latest development is negative for the local exchange operator and expect consensus estimate to be revised downwards.
Valuation wise, SGX is trading at 23.2x FY20e P/E and 3% yield.
Ronald K - Market Psychologist - A Stock Market Opportunist
