Singapore Banker Faces Uphill Battle in Boosting SGX Trading

Loh Boon Chye
Loh Boon Chye, incoming chief executive officer of Singapore Exchange Ltd. (SGX). Photograph: SGX/Bloomberg

When Loh Boon Chye left the board of Singapore Exchange Ltd. in 2012, equity trading volume on the city’s bourse had been steadily dwindling for years.

On Tuesday, the veteran Singaporean banker returns to the exchange’s recently-renovated downtown offices as its new chief executive. He will soon have to confront an issue that’s more acute than ever -- in the intervening period, the average daily value of equities traded kept dropping. Turnover on Singapore’s bourse in 2015 has been 95 percent lower than in Hong Kong.

Loh will need to summon management skills honed over more than two decades in international banking to revive the market and appease Singapore’s brokers, who say SGX’s top executives neglected domestic equity trading to focus on developing new derivative contracts.

“They’ve been pushing for the derivatives business because that’s where the growth is,” said Jimmy Ho, president of the Society of Remisiers, which represents Singapore’s commission-based stockbrokers. “They’ve forgotten about the stock market.”

Share trading in the city has stagnated largely due to the dearth of new offerings. Only three companies have listed in Singapore so far this year, at a time when Shanghai and Hong Kong have seen a flood of initial public offerings.

Investor sentiment has also yet to recover from an unexplained $6.9 billion plunge in the value of three commodity companies over three trading days in October 2013, which sapped confidence in the market. Last month, SGX was reprimanded by the Monetary Authority of Singapore over two trading outages in 2014 that forced then-CEO Magnus Bocker to make a public apology.

Well Qualified

Those who know Loh from his stints at Deutsche Bank AG and then Bank of America Corp. say he is well qualified to deal with the challenges he will face in his new job, even if the task of reviving local share trading is daunting.

“At SGX, he’ll have a lot of different constituents he’ll have to deal with, who have different needs and aspirations,” said Philip Lee, vice chairman of Southeast Asia at Deutsche Bank. “The ability to have empathy and connect with others will stand him in good stead. He’s always very calm, he’s never flustered even in the most demanding situation so he’s therefore able to make rational decisions.”

Loh’s success in building up Deutsche Bank’s fixed income business when he was head of Asian global markets between 2002 and 2010 illustrated some of the skills he will bring to reviving the SGX business, said Mark Leahy, who worked for Loh as head of Asia debt syndication during much of that period.

Real Talent

“This was his first ‘long ball’ or taking a long term perspective on the region’s opportunities,” Leahy said. “Having this perspective is one thing but driving the essential internal consensus and support for the strategy during hard times is the real talent.”

With Chinese markets now in turmoil, Loh will need to decide whether to push ahead with attempts to attract more listings from mainland companies. SGX in February appointed one of its most senior executives, Lawrence Wong, to lead initiatives to build its China business, which lags well behind the Hong Kong market.

Companies have raised about $8 billion from more than 50 IPOs in Hong Kong so far this year, according to data compiled by Bloomberg. That, along with the city’s standing as the main gateway for foreign equity investors into China, helps explain why $16.4 billion of shares changed hands each day in Hong Kong on average, compared with $857 million in Singapore.

Derivatives Success

“Our local bourse has lost some of its luster in recent years, largely because IPO aspirants do not enjoy such favorable valuations in Singapore,” said Stefanie Yuen Thio, who handles IPOs and mergers and acquisitions at the Singapore-based legal firm TSMP Law Corp. “With listings being increasingly regulated and post-listing compliance costs going up, the argument for listing in Singapore has become less compelling.”

As well as attempting to revive trading in Singapore equities, Loh will need to continue to build on the SGX’s recent success in developing its new derivatives contracts, seen as one of the major achievements of his predecessor Bocker’s 5 1/2-year tenure. The most successful contracts are Chinese and Japanese index futures, used by institutional investors to speculate or to hedge other positions.

Both SGX and Loh declined to comment on the exchange’s future strategy.

Derivatives trading accounted for 30 percent of SGX’s revenue in the year to June 2014, up from 26 percent two years earlier. The proportion of revenue from equities dropped to 33 percent from 38 percent over the same span. SGX is due to report its latest full-year results on July 29.

Challenging Business

“The equities business remains challenging,” Julian Chua, an analyst at Nomura Holdings Inc. in Kuala Lumpur, said by phone. “They need to get more regional companies to list on SGX, though companies may not be keen to list at this stage given the difficult macroeconomic environment.”

Even if Loh manages to revive the IPO business in Singapore, he still needs to address the lingering concerns over recent trading scandals, according to the Securities Investors Association of Singapore, the largest investor lobby group in Asia. Those include the sudden drop in small commodities stocks in 2013 as well as debt defaults and accounting irregularities that saw a number of Chinese companies delisted or suspended from the SGX.

“Many Singaporeans do not invest in stocks anymore for fear of losing their money,” David Gerald, president of SIAS, said by phone. “They fear they would lose their savings so they’re keeping it in bank deposits even when interest rates are very low.”

Some doubt that, for all his qualifications, Loh will be able to overcome this fundamental distrust.

“The public has lost faith,” said Narayanan Narayanan, an 87-year-old retired stockbroker. “It’s going to be difficult even with a new guy in charge.”

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