Coronavirus-fuelled trading mania a boon for SGX

The Singapore Exchange Centre in Shenton Way.
The Singapore Exchange Centre in Shenton Way.ST PHOTO: KUA CHEE SIONG

SINGAPORE (BLOOMBERG) - Singapore Exchange (SGX) 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 per cent to $27.5 billion in February from the same period a year ago. Average daily volume of derivatives hit a record 1.24 million contracts, it said on March 9.

That has led brokerage,s including Credit Suisse Group, Citigroup and CGS-CIMB Securities International, to upgrade SGX shares this month, touting the South-east 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 (March 10), raising the shares to neutral from underperform.

The continued uncertainty over the coronavirus impact is causing massive swings in markets, boosting trading across the globe. Like SGX, JPMorgan Chase and Citigroup 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 SGX's 2019 revenue, data compiled by Bloomberg show. In February, futures on the Indian rupee and on Nikkei 225 Stock Average were among the most popular, the bourse said. It also highlighted the surge in volume for exchange-traded funds, which jumped 245 per cent from a year ago to US$356 million (S$500 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 spokesman said. According to a March 9 statement, there was a "surge in participation outside of Asian time zones," underscoring growing demand from Europe and the US.

Citigroup and CIMB both upgraded SGX to the equivalent of a buy rating. The US 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."

SGX shares haven't been immune to the global equity rout. They've lost 8.4 per cent 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. Still, the stock is the third-best performer in the Straits Times Index this year.

 
 

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, 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.