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Proxy plays for Singapore equities

The Edge Singapore
The Edge Singapore  • 3 min read
Proxy plays for Singapore equities
If Singapore equities get a boost, proxy plays could include Singapore Exchange, UOB-Kay Hian and iFAST Corp
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Based on price performance, iFAST Corp appears to be the main beneficiary of news reports that Singapore may introduce measures to boost its equity market. In the week of Sept 13 to 17, iFAST rose 10% in two days, to $9.90, eliciting a query from the Singapore Exchange (SGX) on Sept 15.

In its reply, iFast indicated it had said on July 31 that it has finalised and signed the prime subcontractor contract for a Hong Kong pension project and that the group aims to provide some guidance on the potential growth of its overall Hong Kong business for 2023/2024 and beyond by the end of this year.

“It is possible that investors are anticipating that the overall growth of the group may be significantly boosted in the years ahead given potential strong growth from Hong Kong,” iFAST said.

Yet, following the release of its results on July 23, iFAST’s share price fell. As part of its growth initiatives, iFAST said: “The potential benefit that the project is expected to bring to the Group may be linked to the trading activity, where investors may be anticipating a potential substantial impact on the Group’s revenue in the years ahead”. The contract involves design, build and operation of the eMPF or electronic Mandatory Provident Fund platform for PCCW Solutions.

In addition, iFAST also confirmed it had a 40% stake in a consortium that is bidding for Malaysia’s digital bank licences. iFAST also put in a bid for Singapore’s digital bank licence but was not among the awardees.

Technically, the surge has pushed prices up to a relatively overbought level. In the absence of any negative indicators, prices look set to move to new highs after breaking out of resistance.

Other beneficiaries of the package to boost the local equity market are SGX and UOB Kay Hian Holdings. SGX is liquid, has an institutional following, a fee-based business model that investors like, and profit margins in the 40% to 50% range. SGX’s management has focused on derivatives, including commodities and foreign exchange.

Two years ago, SGX combined its cash equities and equity derivatives segments. Together, they currently account for 67% to 70% of revenue. Unlike Hong Kong Exchange, IPOs on the local market are few and far between. Capital markets are supposed to support economic growth, and the ever growing list of derivatives on the SGX may not be sterling optics for Singapore. No surprise then that the pendulum could swing back to equities. If so, SGX’s share price should benefit.

In addition, the Chinese government’s curbing of the activities of some of China’s largest tech, education and property companies — coupled with the threat of Evergrande Real Estate Group’s possible potential failure — could provide Singapore with an opportunity to boost its own somewhat moribund equity market.

Technically though, signs have yet to emerge of recovery for SGX’s share price, given that it is languishing beneath its 200-day moving average which is currently at $10.28. In the past two weeks, as prices eased, the smoothed RSI started rising. It is still too early for a break above $10.28, but a base formation is probably underway as prices attempt to establish the $9.90 to $10 level as support.

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