Singapore Exchange Ltd., operator of Southeast Asia’s biggest stock market, may report a 13 percent drop in fourth-quarter profit today as it faces the biggest slump in equity trading in four years.
The bourse will post net income of S$69.3 million ($55 million) in the three months ended June 30, according to the average of six analyst estimates compiled by Bloomberg. The value of daily equity volume slipped 22 percent from a year earlier to S$1.1 billion in the quarter, taking the full-year decline to 20 percent, the most since 2008, Bloomberg data show.
“The prospects for a turnaround in trading volumes don’t look that great,” said Sam Hilton, Hong Kong-based analyst at Keefe, Bruyette & Woods Asia Ltd. “It’s challenging because that’s driven by the global macroeconomic environment. Lighter listing activity is also not helping.”
Companies raised about $518 million from initial public offerings in Singapore this year, or 7.4 percent of the amount in the same period in 2011. The decline in equity trading outpaced those in Tokyo and Hong Kong, a city that drew global brands including Prada SpA.
Singapore also lost IPOs such as Manchester United Ltd., the English soccer team with a record 19 national league championships, which will list in the U.S. Formula One’s stock sale in the city, where it hosts the Grand Prix’s first night race, may also be put on hold.
Singapore Exchange, under pressure to expand since Australian regulators rejected its $8.7 billion bid for ASX Ltd. in April 2011, has started new products to its derivatives business. Of the exchange’s 60 members, 40 participate in the derivatives market, according to the bourse’s website. The ASX and Singapore Exchange said this week they are tying up with data centers to offer better connectivity for investors.
“Equities is still the bulk of the revenue, so that will be the key consideration,” said Leng Seng Choon, an analyst at DMG & Partners Securities in Singapore. “I see growth potential in derivatives, but the question is how many more months or years will it take to increase revenue share?”
So-called open interest for equity and fixed-income derivatives increased 33 percent in June, according to a Singapore Exchange statement on July 4. Trade in listed equity-derivatives globally dropped 11 percent in the first half and remained stable for fixed income, the World Federation of Exchanges said this week.
The bourse also trades 12 index futures. The Nikkei 225 Index Futures, also available on the Chicago Mercantile Exchange and Osaka Securities Exchange, was the most active, with 29.9 million contracts in the year ended June, according to exchange data. The MSCI Taiwan Index Futures, exclusive to the Singapore bourse, was the second-most popular, followed by India’s Nifty Index Futures, also traded on the CME and Indian bourses.
“The key advantage they now have is that they have reasonable volume in many key Asian indices, so really a one-stop shop,” Arjan Van Veen, an analyst at Credit Suisse in Hong Kong, said in an e-mail.
Singapore Exchange shares climbed 8 percent this year, outperforming the Australian and Hong Kong bourses. The benchmark Straits Times Index has gained 14 percent in 2012, luring the region’s biggest investors to a rally that trails only Denmark among developed nations.
While Singapore Exchange rejected market speculation last week that it was in merger discussions with the London Stock Exchange Group Plc, Hong Kong Exchanges & Clearing Ltd. and the Tokyo Stock Exchange Group Inc. have turned to mergers to expand.
Hong Kong Exchanges, the world’s second-biggest exchange by market value, has bid $2.2 billion for the London Metal Exchange, the world’s largest metals bourse, and TSE is seeking to buy Osaka Securities Exchange Co., valuing its smaller rival at 129.6 billion yen ($1.7 billion).
Mergers and acquisitions is “not really on my agenda,” Singapore Exchange’s Chief Executive Officer Magnus Bocker said in an interview with the Financial Times published this week. Carolyn Lim, a spokeswoman at the exchange, declined to comment on the report.
Singapore Exchange renewed 50-year-old Bocker’s contract with a 33 percent pay rise last month, extending his service through June 30, 2015. Under the Swede, the bourse rolled out one of the world’s fastest trading systems, abolished the lunch break and introduced new products such as commodities contracts with the London Metal Exchange.
Singapore is among the proponents of a proposed link among Southeast Asian bourses which would facilitate cross trading of stocks in Singapore, Malaysia, Vietnam, Indonesia, the Philippines, and Thailand.
“At the operational level, SGX is doing everything that they can,” Neo Chiu Yen, an analyst at ABN Amro Private Banking, which oversees $207 billion in assets, said in a phone interview. “Whatever investment SGX made, they should reap the benefits when market volumes come back.”