Hong Kong Beating SGX in Bourse Battle: Chart of the Day

A rally in Hong Kong Exchanges & Clearing Ltd. is pushing valuations to the highest relative to its Singapore rival since April 2008 amid optimism for an equity link with Shanghai and as London Metal Exchange boosts earnings.

The CHART OF THE DAY tracks performances of the Hong Kong and Singapore bourses and their benchmark equity indexes on a normalized basis this year. HKEx has surged 19 percent, with most the gains coming since Chinese Premier Li Keqiang on April 10 announced the cross-border trading plan, while the Hang Seng Index added 0.7 percent. Singapore Exchange Ltd. is down 4.4 percent amid proposed restrictions on small-cap shares, while the Straits Times Index gained 3.9 percent.

HKEx’s rally drove its valuation to 39 times historic earnings yesterday, near the highest since February 2013, while the multiple for SGX fell to 22.4 from an August peak of 24.4 before the penny-stock crash, data compiled by Bloomberg show. The spread on July 14 was the widest since April 2008, the data showed. The two Asian financial hubs are competing to draw Chinese listings, add commodities and serve as yuan-trading centers.

“Hong Kong Exchanges stands out, with LME contributions and the connection to Shanghai providing a meaningful increase in trading volumes and profitability,” Harsh Wardhan Modi, an analyst at JPMorgan Chase & Co. in Singapore, said by phone on July 8. “For SGX, volumes collapsed after the penny-stock fiasco in October and hasn’t recovered.”

HKEx’s 2013 profit rose 11 percent, helped by its acquisition of LME the year before, and net income will climb 15 percent in 2014, according analysts surveyed by Bloomberg. Companies raised $6.6 billion from IPOs in Hong Kong so far this year, three times the amount raised a year earlier, while Singapore listings fell to $880 million from $4.2 billion, Bloomberg data showed.

Singapore regulators are weighing trading curbs on small-cap shares after a rout in which three commodity companies including Blumont Group Ltd. erased $6.9 billion in market value over three days in October. Average SGX daily volume tumbled 33 percent to S$1.1 billion ($884 million) in the six months to June 30 from a year earlier, while Hong Kong’s declined 7.7 percent to HK$62.7 billion ($8.1 billion), according to Bloomberg data. To boost activity, SGX has been rolling out derivatives including stock-index futures for most Asian markets and contracts for commodities including iron ore, rubber and coal.