SGX share price hits 10-year high as trading volume surges
Share price of Singapore Exchange continues to benefit greatly from the current market volatility.
SGX’s trading volume soared in February and March 2020
Multi-asset stock market bourse Singapore Exchange (SGX) has experienced a surge in share price in recent weeks, on the back of higher trading volumes brought on by ongoing coronavirus-driven market volatility.
Since 23 March, SGX’s market value has spiked up more than 20% to a current trading price of S$9.79 per share – the highest level since October 2010.
New Bloomberg data suggested that SGX’s securities average daily value (SADV) surged by an estimated 59% year-on-year in the third quarter of its 2020 financial year to S$1.55 billion. This represents a 51% jump from the second quarter.
The number of derivatives average daily contracts traded for the month of February 2020 came in at an estimated 1.24 million, nearly 40% higher than Q2’s average of 0.84 million. FTSE China A50 Index and currency futures accounted for some 39% of this volume.
The sharp spike is likely due to significantly higher trading volumes, with investors clamouring to tighten and refresh their portfolios following the global market disruptions caused by the coronavirus pandemic, Bloomberg had reported.
‘The uncertainties have driven demand for risk management in equities, FX and commodities," an exchange spokesman had told media last month, adding that there ‘was a surge in participation outside of Asian time zones’ during this period as well.
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How do analysts rate the SGX stock?
‘SGX's velocity has a positive correlation with volatility,’ Credit Suisse analysts had written in a client note on March 10. They had raised their rating on SGX shares to ‘neutral’ from ‘underperform’, citing higher revenue for SGX’s data, connectivity and index business units in the next five years.
In view of the higher trading volumes, RHB analysts are expecting strong Q3 earnings for the company when its financial results are released on 24 April. They have raised their FY2020 SADV assumptions to S$1.24 billion from S$1.08 billion, and net profit predictions for the full year by 11% on the back of stronger derivative and equity contributions.
They also forecasted a dividend payout (DPS) of S$0.35 per share for 2020, based on an 85% payout ratio. This is higher than FY2019’s DPS of S$0.30 per share.
Their hypothetical 12-month share price target case for the SGX stock is S$9.10 per share, up from S$8.80, although this is mostly based on RHB’s expected 23x higher 2021 earnings per share for SGX.
However, they noted that if the Covid-19 pandemic is prolonged, trading volumes could experience a gradual decline from current levels. But if the pandemic subsides in the near-term, another round of short-term trading volume surge could be in store.
Meanwhile, analysts from Citibank, DBS and CIMB all raised their share ratings on SGX to a ‘buy’ equivalent, thanks to volatility boosting not only the bourse’s staple equity offerings, but also its newer instruments like forex and wider-margin commodities derivatives.
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