SGX-Bursa Malaysia stock trading link to improve liquidity in both markets

A Singapore Exchange logo sits outside their head office in Singapore April 22, 2015. REUTERS/Edgar Su/Files

The Singapore Exchange (SGX) has announced a collaboration with the Bursa Malaysia (BM) on jointly developing their capital markets through a stock market trading link.

In a statement issued by the Monetary Authority of Singapore (MAS), Lee Boon Ngiap, MAS’s Assistant Managing Director, observed: “The trading link will help lower trading costs for investors and encourage greater cross-border investments in the stocks listed on each other’s exchanges. This will improve the liquidity of both our stock markets. I hope this initiative will in time expand to include the rest of the stock exchanges in ASEAN.”

The SGX-BM partnership will enable cross-border clearing and settlement of traded stocks under the joint regulatory supervision and enforcement arrangements by MAS and SC. SGX and BM will jointly develop out the operational model and safeguards for the trading link.

The launch of “Malaysia-Singapore Connect” will enable the investment community in Malaysia and Singapore easier access to each others capital markets, as well as offering a combined market capitalisation in excess of $1.2 trillion and more than 1600 public listed companies.

In many ways, this latest development models the launch of the Shenzhen-Hong Kong Stock Connect, which as at November 2017 had seen in excess of $1.025 trillion worth of shares traded since inception.

The launch of the Shenzhen-Hong Kong Stock Connect benefited institutional investors, and the Malaysia-Singapore Connect is likely to reflect this, as institutional investors based in Singapore will be able to leverage on the gap between share prices in the Bursa Malaysia and Singapore.

However, a December 2017 report by Maybank Kim Eng (Maybank KE) on the SGX noted that structural issues surrounding its equities business remain a key concern.

The brokerage observed: “For equities, some issues are low turnover velocity due to low traded value and difficulty in growing market cap substantially; low valuations of companies; and an inability to attract bigger IPO listings.”

With average market capitalisation forecast to achieve a 3-year CAGR of 6.5 per cent and higher traded value, turnover velocity is expected to be largely stable between ~across FY18-20E.

SC chairman Seri Ranjit Ajit Singh, who also chairs the ASEAN Capital Markets Forum (ACMF), commented: “The establishment of this trading link is an important step towards encouraging ASEAN investors to invest in ASEAN. The ease of accessibility for investors will contribute towards greater vibrancy in our markets. Once operationalised, this pilot initiative can form the basis for future connectivity among ASEAN markets.”

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