SGX trading volume may suffer fromHK-Shanghai tie-up

Singapore — The first phase of the opening up of China’s US$4.2 trillion (S$5.45 trillion) stock market through the launch of a link-up between the Hong Kong and Shanghai exchanges today may put a dent on investor interest in Singapore’s securities market, which is still reeling from the aftermath of the penny-stock crash last year.

Analysts told TODAY that with the low volatility and trading volumes here, investors might flee to other markets that could offer better liquidity and the Hong Kong-Shanghai stock connect scheme is one such option.

“One thing about the local market is that there haven’t been a lot of options for investors as volatile stocks are rare these days and trading activity has been low. With the stock connect, investors who are looking for a piece of the Chinese market can now do so through Hong Kong — that may affect our local investment volume,” said CMC market analyst Desmond Chua.

PhillipCapital Hong Kong’s dealing director Louis Wong said: “Inevitably, there will be fund switching (out of Singapore), but I believe Singapore investors have been diversifying portfolios to the United States, Europe and other Asian markets. The (Hong Kong-Shanghai) stock connect gives them another choice. For the (Singapore) Exchange, this may be a little negative.”

In the first phase of the stock connect, overseas investors are allowed to trade constituent stocks of the Shanghai Stock Exchange’s 180 Index and 380 Index, as well as Shanghai-listed A shares not included in the indexes.

Foreign investors are still attracted to China as it remains one of the world’s fastest-growing economies despite its recent slowdown, said Mr Wong. “China is such a sizable economy and the growth implies many companies operating there will enjoy solid and fast growth. This is a chance for them to invest in these promising businesses.”

The average daily value of securities traded on the Singapore Exchange (SGX) fell 7 per cent year on year in October — the 13th consecutive month of decline. However, compared with September, the value was up 8 per cent last month.

The bourse said it is aware of concern over the current low liquidity and had taken steps to address it, such as conducting roadshows to engage retail brokers and introducing smaller board lot size from Jan 19.

The SGX said it is also working with the Taiwan Stock Exchange to explore a link-up between the two stock markets. Taiwanese media reports on Friday said the market link is expected in the first half of next year.

Beyond equity trading, Singapore’s overall attractiveness as a major capital market is unlikely to be affected in a big way, as it still offers competitive advantages over other regional markets including Hong Kong.

Senior market analyst Kelvin Wong from City Index noted that the Republic is the only exchange that offers the FTSE Xinhua China A50 futures contract and boasts “good infrastructure and transparency for the issuance of yuan bonds”.

SIM University’s finance professor Sundaram Janakiramanan said the Singapore market’s appeal lies in its openness. “Singapore attracts not only listings from Chinese companies, but also those from other countries. In addition, the SGX provides a platform for foreign investors to invest freely in shares listed in the exchange. Thus, Singapore will always be an attractive capital market.”