SINGAPORE (Sept 4): RHB is maintaining its “buy” call on Singapore Exchange (SGX) with a lowered target price of $8.40.

SGX recorded weak securities average daily value (SADV) in July and August this year of $1.09 billion, compared to $1.26 billion in FY18.

In a Tuesday report, analyst Leng Seng Choon says, “We believe global developments such as further hikes in the US Federal funds rate (FFR) and concerns about the trade war could lead to more switching of stocks within equity portfolios and drive trading volumes.”

However, given the weak SADV for July and August, the analyst has cut FY19 SADV to $1.27 billion from $1.39 billion, which factors in SADV of $1.31 billion for the remaining ten months of the final year.

At the Monetary Authority of Singapore (MAS) Annual Report 2017/2018 media conference, MAS said, “Singapore is emerging as a leading Asian bond market, with corporate debt issuance volumes rising by 22% pa over the past two years.”

And much of the increase in debt issuance was by Asian issuers, especially those from China, Indonesia and India.

Ground checks have suggested that there are plans to further develop the secondary market for bonds, as well as exchange-traded funds (ETFs), allowing retail clients to have a diversified portfolio of bonds with a smaller capital outlay.

“Whilst the current volume traded for such ETFs may be low, we believe there is room to expand as more ETFs trade on the exchange,” says Leng.

As the analyst cuts FY19 SADV estimate, FY19 net profit is lower by 4%. But SGX remains in a net cash position with a monopoly over trading of Singapore listed equities.

“Another area investors should be monitoring is the SGX-IISL arbitration,” says Leng.

There is currently a deferment of the arbitration proceedings between SGX and IISL, but the directions under the arbitration order remain effective.

As at 12 noon, shares in SGX are trading 2 cents lower at $7.40 or 7.0 times FY19 book with a dividend yield of 4.4%.

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