The Singapore Exchange (SGX) stock took a hammering yesterday amid doubts about the future of the market operator's Indian equity index-linked derivatives. Analysts, however, kept their ratings on SGX unchanged, preferring to wait and watch how events unfold.
The SGX stock lost 58 cents to close at $7.31 on Monday - down 7.4 per cent. Some 19.5 million shares changed hands, making it one of the most active counters on the Singapore bourse.
This came on the back of India's announcement that its national stock exchanges would stop providing data feeds to foreign rivals, and eventually halt the trading of offshore derivatives tied to India's benchmark indices such as the Nifty 50, as part of a concerted move to prevent trading volumes from moving overseas.
SGX, which offers the popular SGX Nifty 50 index futures, was busy soothing market participants over the weekend. In a statement on Sunday, the SGX said the market for its entire India suite of products would operate as per normal yesterday.
At the very minimum, it would be business as usual till August, the SGX said. Under its licence agreement with India's National Stock Exchange, there is a six-month notice period for termination.
Analysts at RHB Research, DBS Bank and OCBC Bank kept their ratings unchanged on SGX's stock, despite acknowledging that the Indian development was a negative.
OCBC maintained its "hold" rating, with a 12-month target price of $8.48 against its fair-value estimate of $8.16.
OCBC analyst Carmen Lee said yesterday that the termination of Nifty licensing could result in a "knee-jerk reaction on SGX's shares", along with some downgrades that could dampen SGX's share price in the near term.
RHB Research kept its "buy" rating with a target price of $9, noting that SGX Nifty index futures accounted for about 12 per cent of the exchange's total derivatives volumes during the latest quarter. RHB estimated that a 10 per cent decline in the derivatives average daily volume would lower the stock's fair value to $8.36, while a 20 per cent decline would drag fair value down to $7.71.
"The impact on FY18 financials is seen as limited, but would be felt more so from FY19 onwards," RHB said. "SGX has indicated that it would work on new product developments to help offset this adverse impact. We are not adjusting our earnings, as we await more information from the company on new products."
DBS analyst Lim Sue Lin, who has a $8.90 target price and a "buy" rating on SGX, said the share price could be under pressure in the near term, pending the resolution of the current situation.
But "SGX's stock price should still be supported by its stable and sustainable dividend yield of 4 per cent and its continued efforts to drive market liquidity and new product initiatives, which should bear fruit in the coming years, including the recently announced trading link with Bursa Malaysia", Ms Lim wrote.
Separately, FIA, a trade association for global listed and cleared derivatives markets, said India's move "appears likely to disrupt trading on numerous exchanges around the world and alarm international investors".
It added: "We believe that accessible markets are essential for the optimal growth and development of liquidity, and allow customers to hedge their risks and manage their exposures in the most efficient way possible.
"We look forward to discussing this announcement with the Indian exchanges and working with our members to more fully understand the consequences for derivatives markets and their customers."