Singapore Exchange <SGXL.SI>, Asia’s second-largest listed bourse, unveiled a 21% fall in quarterly net profit on Monday, but was bullish about its prospects due to improving sentiment in Asian stock markets.

SGX and rivals such as Hong Kong Exchanges and Clearing have seen their share prices and trading volumes surge in recent weeks as global investors allocate more funds to Asia.

 

Most analysts are upbeat on SGX’s prospects due to the expected rise in trading volumes from new financial products including the ADRs of Chinese companies such as Internet leader Baidu <BIDU.O> that will start trading on Oct 22. 

 

SGX shares fell as much as 2.4% after the results, but trimmed losses. At 0235 GMT, the shares traded at $10.02, down about 1%.

 

SGX shares, which hit a nine-month high last week, have rallied more than 40% from its year low in early June, while HKEx has gained about 56% from a trough in late-May.

 

"It’s very hard for SGX to compete with the likes of Hong Kong because Hong Kong has a bigger China market," said DBS Vickers analyst Lim Sue Lin.

 

She still recommends a "buy" on SGX because the Singapore bourse offers a broader exposure to the whole of Asia and has a wider suite of products than its Hong Kong rival.

 

SGX’s July-September net profit fell to $74.2 million from $94.1 million a year ago, hurt by weak trading volumes in July and August and higher technology-related costs.

 

SGX’s earnings were below the $90 million forecast by four analysts polled by Reuters, as revenues from equity trading came in below estimate.

 

The bourse said fees during the period were crimped by a larger proportion of “capped trades” — or very large trades that resulted in relatively smaller fees.

 

SGX CEO Magnus Bocker, who joined in December 2009 from NASDAQ OMX <NDAQ.O> <.OMXC20>, has been trying to boost trading volumes in Singapore by speeding up the rollout of new financial products and getting more parties to trade on SGX.

 

SGX said on Monday that Chi-East, its “dark pool” joint venture with Nomura’s <8604.T> Chi-X, has obtained central bank approval and will start operations by end-2010 as a pan-Asian crossing network for shares listed in Australia, Hong Kong, Japan and Singapore.

 

Other recent initiatives by SGX, as rival HKEx continues to attract mega-stock listings, include new contracts such as gold and coffee and investments in new IT systems to attract algo, or high-frequency, trading.

 

“If the current market conditions prevail, SGX should benefit from a potential increase in capital market activities, both in higher trading activity and more companies seeking to raise capital on our equity and debt listing platforms,”" Bocker said in a statement.

 

Shares of Global Logistic Properties <GLPL.SI> surged 10% on its market debut on Monday in Singapore’s second-largest IPO. Units in Mapletree Industrial Trust, another big IPO, debuts later this week. 

 

“While this result may temporarily put the brakes on SGX’s recent strong price performance, the market may also focus on stronger recent turnover data and the potential revenue upside from recent new initiatives,” Citi analyst Robert Kong said in a note.