When Boon Chye Loh, best-known as the driving force behind Deutsche Bank’s once-formidable global markets business for Asia, took on the top job at the SGX, he faced a challenge.
Singapore’s stock exchange can no longer count on an onslaught of new listings to drive revenues. Almost all the big blue-chips are already listed.
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Boon Chye Loh, SGX |
Foreign stocks, most notoriously the so-called S-chips that list mainland Chinese businesses of variable merit in Singapore, have fallen out of favour among local investors. The Reits market, a Singapore mainstay, is hampered by the fact that almost all the good commercial real estate in Singapore is already securitized.
And a hoped-for generation of entrepreneur-driven local companies has largely failed to materialize – and where it has arrived, such as in tech, those entrepreneurs tend to find Nasdaq just as appealing a prospect as the SGX.
In fact, if anything, the trend is not towards new listings but delisting of existing ones.
On top of that, the natural answer to that quandary – buy foreign stock exchanges and consolidate – has been proven to be prohibitively difficult, by the SGX itself.
In late 2010, the then-CEO Magnus Bocker, a veteran of no less than nine international exchange combinations at the time, launched a bid for the Australian Stock Exchange. People warned that, no matter how good the synergies might look, Australian protectionism would nix the deal, and so it proved: Bocker’s vision of regional consolidation was much more difficult to realize in Asia than in Europe, or even across the Atlantic.
So what to do? The SGX’s bid for Baltic Exchange, a deal whose terms were formally agreed on August 22, gives us an answer – and it’s a not dissimilar answer to one reached by the rival Hong Kong stock exchange. If you can’t grow through stocks, try another asset class.
Baltic Exchange will bring commodities and their transportation into the SGX family, which makes sense: since Singapore is in any case a centre for the shipping of commodities, it might as well be one for the trading and settlement of shipping contracts as well.
Potential
It has a lot of potential: SGX could build new indices around Asian coastal shipping routes, for example.
Announcing the deal, Loh said it would bring together complementary strengths between two vital maritime hubs, insisting that SGX has already driven growth in global dry bulks and is a major venue for the clearing and settlement of freight derivatives.
There are clear parallels to the decision by Hong Kong Exchanges and Clearing – which runs Hong Kong’s exchange – to buy the London Metal Exchange in 2012. Here, too, a market with some long-term worries about attracting new listings (in its case because of Shanghai and the steady opening up of the Chinese currency) turned to commodities as a way to diversify earnings and provide a new path to growth.
That was a far bigger deal: it cost $2.2 billion, whereas the bid for Baltic Exchange would value the British bourse at £87 million, but the principle is the same. Each exchange needs more asset classes, and as many derivative contracts as it can muster, to thrive.
If all goes well, the SGX/Baltic deal will go through in November. It won’t change the exchange’s fortunes by itself, but it’s a start.