The proposed link between the Singapore and Malaysia stock markets could spark interest among retail investors and potentially lift securities revenue for the Singapore Exchange (SGX), according to DBS Group Research.
By the year end, the SGX and Bursa Malaysia will be connected by a trading link that will let investors trade and settle shares in both markets in a more convenient and cost-efficient way.
DBS Group Research noted that being able to trade and settle shares in both markets will make the initiative different from the Central Limit Order Book (Clob) set up in 1990.
Clob closed less than a decade later after it was deemed to be an "illegal market" by the Malaysian government.
DBS Group Research said yesterday that the new trading link could appeal to retail investors in particular, as they "may not already have their own access to multiple markets through existing channels".
About 20 per cent of the SGX's average monthly turnover between January and August 1998 was attributed to trade in Malaysian shares before Clob ceased to operate.
CIMB Research said the new trading link would likely benefit retail participants more than institutional investors.
It could encourage more cross-border research reports, with similar sectors and companies listed on the SGX that are trading at lower valuations than their peers on the Bursa being potential beneficiaries.
"This trading link could replicate the success of the Hong Kong-China stock connect in terms of higher cross-border trading and investment flows, possibly resulting in higher trading turnover for SGX," it said.
DBS and CIMB noted that the Asean Trading Link that started in 2012 had not been successful, but lessons drawn from that experience should deliver better coordination between both governments.
DBS added that as the arrangement is a government-to-government effort, there would be a higher possibility of success.
Both have a "buy" rating on SGX stock: DBS with a target price of $8.90; CIMB at $8.50.
SGX shares closed 13 cents up at $8.01 yesterday.