SGX dips after analysts downgrade stock on falling equity volumes, slowdown in derivatives
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The volatility in SGX’s share price came after downgrades by investment banks JPMorgan and Goldman Sachs.
ST PHOTO: KUA CHEE SIONG
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SINGAPORE – Singapore Exchange (SGX) shares ended their month-long rally on Sept 12 after downgrades from key brokerages sent investors fleeing for the exits.
The stock dived by as much as 6.6 per cent in early trade before rebounding to close at $11.36, down 3.4 per cent for the day.
The decline came after downgrades by investment banks JPMorgan and Goldman Sachs cut short a rally that had added more than 20 per cent to the share price since the start of August.
JPMorgan analysts downgraded SGX to underweight from neutral, citing concerns over a decline in equity trading volumes.
An underweight recommendation indicates that the stock is expected to underperform relative to the market.
There were 23.4 billion shares traded on the SGX in August, a 20 per cent drop compared with the same period in 2023, and a 13.5 per cent fall from July, the bourse noted on Sept 9.
“The 20-day moving average on trading volumes has declined since August, which is a catalyst for near-term downside,” JPMorgan analysts wrote in a September note to clients.
They recommended selling SGX shares at their current levels to lock in gains ahead of a potential decline in the stock’s value. JPMorgan estimates that the stock could fall to $10.50 in the next 12 months.
Goldman Sachs analysts flagged early signs of a slowdown in SGX’s fixed income, currencies and commodities derivatives franchise, which has been the bourse’s strongest business.
“If this slowdown were to transpire, the earnings headwinds for the group would increase as the equities business remains slow,” analysts noted.
They added that the recent rally in SGX shares as well as the broader stock market is “overdone”, with the price fully factoring in news about a review group set up by the Monetary Authority of Singapore on Aug 2 to revitalise the local bourse.
The analysts have a sell recommendation on the stock, which they expect will decline to $9.90 in the next 12 months.
Not everyone shares this view, however.
Analysts from local brokerages RHB and CGS International agreed that SGX could still outperform as a result of stronger average values of the securities traded on a daily basis.
They point out that the average daily value of securities traded for August was $1.37 billion, the highest since May 2022 and above expectations.
Consequently, RHB analyst Shekhar Jaiswal has raised his profit forecasts for the next two financial years by 5 per cent and 3.3 per cent and set a target price of $11.80, which is higher than a previous estimate.
CGS International’s Andrea Choong added that the stock could also rise further should revenue from the currencies and commodities derivatives grow. She has a target price of $12.50.
