What's next for SGX shares following BidFX and FTSE Taiwan deals?

Singapore Exchange (SGX) announced on Wednesday 01 July that it will be introducing a futures contract on the FTSE Taiwan RIC Capped Index (FTSE Taiwan) starting from 20 July 2020.

According to the press release, this new offering will provide global investors and fund managers with access to a diversified range of large and mid-capitalisation Taiwan stocks.

Following the announcement, SGX’s share price opened the day slightly higher at S$8.39. However, it was unable to sustain that level, as it fell 2.2% throughout the morning session to an intraday low of S$8.20 a share by 11:20 SGT, IG data showed.

SGX FTSE Taiwan Index futures to be offered across time zones

The stock exchange operator that it also expects to receive certification from the Commodity Futures Trading Commission for the offer and sale of the contract in the US shortly after launch, in a bid to achieve broader distribution among institutional investors.

Michael Syn, Head of Equities at SGX, stated: ‘International investors own some 40% of Taiwan’s equities, making its market an important part of any Asian investment portfolio. We are glad to work with FTSE and our partners to meet the rising demand of U.S. and European investors for access and investment exposure to Taiwan, with consistent diversification to manage risk.’

Taiwan is currently the seventh largest economy in Asia and occupies a key position in the global industrial and technology value chain. The broad-based and diversified FTSE Taiwan index with a capping methodology covers nearly 80% of Taiwan’s listed companies by market capitalisation, and offers strong correlation with other major Taiwan benchmark indices.

SGX added that the FTSE Taiwan Index futures contract will ‘provide global investors with an effective and cost-efficient way to invest in the Taiwan stock market, round-the-clock across Asian, European and US time zones’.

SGX to acquire remaining stake in BidFX

This update comes two days after SGX revealed that it would be acquiring the remaining 80% stake in BidFX from its other shareholders for a cash consideration of approximately US$128 million.

SGX first acquired a 20% stake in BidFX in March 2019, with the aim of bringing together foreign exchange (FX) futures with over-the-counter (OTC) markets.

SGX said the BidFX deal forms a part of its ‘multi-asset strategy’ to build the forex market into a ‘core pillar of growth’, by expanding beyond FX futures into the global FX OTC market.

The transaction to fully acquire BidFX is expected to be completed in July 2020.

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SGX to post full-year FY2020 results on 30 July

The bourse also announced on Tuesday 30 June 2020 that it will be reporting results for its 2020 financial year after the market closes at 18:00 SGT on 30 July 2020.

The briefing will be completely virtual, with a live video webcast of the briefing to be made available at www.sgx.com/shareholders.

‘As we proactively manage the Covid-19 situation and safeguard the well-being of our employees and guests, we will be suspending the regular face-to-face analyst and media briefing,’ SGX said.

What’s the outlook on the SGX share price?

The SGX stock currently has a ‘fully valued’ rating from DBS analysts alongside a 12-month share price target of S$7.40 per share.

Despite the potential synergies provided by the BidFX acquisition deal, analysts believe that there is ‘limited upside in the interim’ for the stock, in light of the reduction of the MSCI licence agreement in May 2020, and the resulting near-term earnings catalyst.

Meanwhile, RHB researchers upgrade their rating on SGX to a ‘buy’ from ‘neutral’ on 25 June 2020, with a share price target of S$9.20 per share from S$8.60 a share, representing a 12.7% upside.

They said that the projection is supported by an estimated 4% annual dividend yield for FY2021, and pegged to a 24x FY21F earnings per share estimate.

They also raised SGX’s assumed FY21 securities average daily value (SADV) by 15% to S$1.32 billion, given the recent weeks’ SADV strength. Finally, they concluded that the economic recovery from Covid-19 could give rise to more volatility in the equities market and hence increase trading.

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