Where next for SGX shares in 2020 following loss of MSCI products?

Analysts say the medium-term case for the SGX stock will inevitably be impacted, with MSCI products accounting for 12% of total traded derivatives.

Singapore Exchange (SGX) announced last Wednesday (27 May 2020) that it would reduce its non-Singapore licence agreement with Morgan Stanley Capital International (MSCI) Inc starting from February 2021.

As part of the decision, only MSCI Singapore futures and options will remain listed on SGX. The remaining derivative products – including those for Taiwan and Net Total Return – will be offered on the Hong Kong Exchanges and Clearing (HKEX) from next year.

SGX’s Chief Executive Officer Loh Boon Chye explained that while the move may have a near-term impact on the bourse’s equities derivatives open interest, its multi-asset portfolio shelf has reached a critical mass.

He added that the company will work closely with the relevant stakeholders in managing their open interest as it gradually discontinues the MSCI equity index futures and options contracts.

Read also: Top 5 SGX stocks for the week ending 29 May 2020

SGX shares still trading 16% below last week's price

Following the announcement, SGX shares had plummeted nearly 18% to a two-month low price of S$8.155 per share on 28 May, based on IG trading data.

Fast forward a week later, share price remains largely unchanged, with the stock moving along a median price level of S$8.30 per share as of Tuesday 02 June – still roughly 16% below the price at the time of the MSCI announcement.

Prior to this, SGX was one of few listings tracked by the Straits Times Index whose share price had managed to rebound strongly even as the Covid-19 pandemic outlook remained uncertain. Between 20 March 2020 and 22 April 2020, SGX’s share price rebounded nearly 30% - surpassing even the original loss amounts caused by the coronavirus-driven sell-off to hit a ten-year high.

IG is a world-leading online trading and investments provider for thousands of financial markets. With CFDs (read about CFDs here), you can buy long or sell short on Singapore Exchange (SGX) and other Singapore stocks depending on whether you think prices will rise or fall. Start today by opening a live or demo IG account.

Analysts lower ratings and share price targets for SGX

Analysts from CIMB, DBS, OCBC and RHB have since lowered their ratings and share price targets for SGX.

DBS researchers downgraded their rating to ‘full valued’ and a share price target of S$7.40 per share – down from S$10 previously, citing a potential 10% to 15% decline in net profit across the 2021 financial year in view of the loss of the non-Singapore MSCI derivative licences.

The analysts wrote that this ‘dents the medium-term thesis for SGX’s derivatives volume growth’, as they collectively contribute an estimated 15% and 12% of equity derivatives contract and total derivative contract volumes.

However, they say that catalysts in the form of lower-than-expected profit decline and higher-than-expected growth in securities daily value could potentially raise the stock’s near-term rating and price projection.

OCBC analysts gave the stock a ‘sell’ rating and a 12-month share price target of S$8 per share (down from S$8.60), given unattractive valuations and concerns on SGX’s derivative growth prospects, seeing that this segment accounted for half of the bourse’s FY2019 revenues.

They added that competition from the HKEX concerning China index futures could also potentially arise, when HKEX launches MSCI China A. FTSE China A50 contracts currently constitute about 37% of SGX’s total trading volume.

On the flipside, SGX’s recent acquisition of index provider Scientific Beta could also prove to be beneficial for SGX in the long run, with greater index construction capabilities expected to allow it to expand its customer base and product offerings.

Meanwhile, CIMB and RHB have each given the SGX stock a ‘reduce’ and ‘neutral’ rating, and fair value price estimates of S$8 and S$8.60 per share respectively.

How to trade Singapore stocks with IG

Are you bullish or bearish on SGX, Singapore Airlines (SIA) and other Straits Times Index (STI Index) stocks? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs in a few easy steps:

  • Create a live or demo IG Trading Account or log in to your existing account
  • Enter <company name> or <ticket code> in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
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