The Singapore Stock Exchange, Southeast Asia’s biggest, is entering a new and uncertain chapter as it welcomes Loh Boon Chye as its new chief executive.
For Loh, a veteran with more than two decades of experience in the financial industry, the chapter’s synopsis is very clear: winning back business.
According to a consultancy PwC, the Hong Kong Stock Exchange processed 122 IPOs in 2014 compared to Singapore’s 27. Thailand even surpassed Singapore with 41 IPOs last year, while Indonesia and Malaysia were not far behind the Lion City.
Meanwhile, about S$266 billion worth of shares changed hands on SGX last year, down from S$352 billion in 2013, data from the World Federation of Exchanges (WFE) showed. In comparison, the Hong Kong bourse saw about US$1.45 trillion worth of shares traded in 2014, up from US$1.27 trillion in 2013.
“SGX has to adapt to stay ahead,” Loh said in a statement in June as the exchange announced his appointment.
That looks like an understatement because Loh, who starts on July 14, must revive equity-trading volume, attract better, bigger and more businesses to list and fend off regional competition, which is easier said than done.
Investors have been voting with their feet since Loh’s predecessor Magnus Bocker joined in late 2009.
Even though derivatives business, which makes up for nearly a third of the bourse’s revenues, posted record volume of 120 million contracts in 2014, the exchange’s shares have remained flat throughout Bocker’s tenure.
Events such as the October 2013 penny stock scandal which saw the most actively traded shares on the bourse crash spectacularly, the failure to acquire Australia’s stock operator, ASX in April 2011 and the two outages end of last year all helped take the shine off.
The IPO situation has not helped.
The important thing for Loh, according to Sam Ahmed, managing director at Deriv Asia, is to build on the derivatives business and keep up the momentum Bocker built in trying to make SGX a regional hub.
“[Loh] is a very good choice – someone who knows the local landscape and is likely to engage more with the stakeholders to bring in the necessary reforms,” Nicholas Teo, analyst at CMC Markets told FinanceAsia.
Wave of optimism
SGX, which sees 40% of its listings from companies outside Singapore, is expecting a pick up; especially from corporates in India, China and Indonesia, that require capital to fund growth, according to Muthukrishnan Ramaswami, SGX president. “Through these listings, we should be looking to double our market cap in five years,” he told FinanceAsia.
The exchange is hoping closer ties to China in particular and more relaxed IPO rules will help it to grow. Ramaswami remains optimistic about the pipeline in China as regulators in recent years have made it easier for companies incorporated in China to list on SGX directly.
SGX this year also appointed its listings head Lawrence Wong as the head of its China business and has moved him to Beijing to drum up interest from Chinese companies.
“All these positive initiatives will bear fruit somewhere around the 12-month mark,” said Ramaswami.
Still, some believe that the plan might be overly ambitious due to a lack of liquidity and the bourse’s dual role as a promoter and regulator, which probably has “diverted its resources and reduced its effectiveness in both roles,” said Bernard Aw, a strategist at IG Ltd.
Need for More Reforms
SGX needs to find a “unique selling point” to attract marquee IPOs, said JP Morgan analyst Harsh Wardhan Modi. “The changes instituted at [its] cash equity business would need to continue” under the new leadership, he added.
Seeking to win investors back, SGX cut clearing fees in 2014 on stock trades and signed up more than 10 financial firms to act as market makers, giving them rebates on clearing fees as incentives to boost liquidity.
Earlier this year, it also cut the “board lot size” – the number of shares that investors must deal in – from 1,000 at present to 100 and has also introduced a “minimum trading price” of 20 cents.
Given the success of the Hong Kong-Shanghai stock connect scheme, it may be time for Loh to rethink SGX’s strategy by developing a post trade system linking ASEAN exchanges, some say.
“Instead of mergers, an alternative for SGX would be to borrow a page from the recent Shanghai-HK [Stock Connect] and attempt to replicate the model with its neighbouring South East Asian exchanges,” Ahmed said.
This may be wise considering that simply having a strong infrastructure, good regulatory environment and strong trade linkages to ASEAN has been insufficient to improve SGX’s fortunes.
“Loh has a successful track record of building strategy towards penetrating deeper into regional markets and increasing market share,” Ahmed said.
That track record is about to be tested.
