February has seen some heavy volume in the local market, as the Trump rally continues pushing markets to new highs. Securities daily average value (SDAV) in February was 1.409 billion, as reported by SGX. SGX provides monthly information on market statistics and weekly institutional and retail fund flows.
February's SDAV of 1.4 billion was 27% above the monthly SDAV of 1.1 billion for 2016, which is a positive development for the market. February's SDAV was the highest in the past six months, even higher than the 1.3 billion in November 2016, when the Trump rally began after the presidential elections. There is evidence that market sentiment is improving, as financial stocks have rallied on expectations for rising interest rates. The offshore and marine sector, which has been hit hard by falling oil prices in recent years, has also showed some signs of recovery as oil prices have stabilised.
Trading volumes have been sluggish in recent years, and even though SGX scrapped the lunch break back in 2011 in a bid to improve trading volumes, trading volumes have been in a downtrend since then. SGX has proposed to bring back the lunch break, a move welcomed by some remisiers as it gives them the opportunity to meet with their clients.
To improve trading volumes, SGX has been actively engaging retail investors through the SGX Academy, which provides seminars to equip retail investors with investing knowledge. SGX is also considering the idea of allowing dual class shares to be listed here, to attract more high profile IPOs. Some companies prefer having a dual class share structure, as it gives the management majority or complete control over key decisions. One reason why SGX lost Manchester United's IPO to the New York Stock Exchange was because dual class shares were not allowed to be listed here.
However, the prospect of having dual class shares also raises the possibility of weak corporate governance, as ordinary shareholders would not have to ability to vote on important decisions made by the management. Ultimately, a fine balance has to be struck between giving the management control, and safeguarding the interests of retail investors.
|Source: SGX Annual Report 2016|
While improving volumes of securities traded and being able to attract big name IPOs would benefit SGX, investors should note that equities and fixed income accounts for only 49% of SGX's revenue. The other 51% of revenue comes from derivatives, market data and connectivity. Investors should evaluate the different revenue streams of SGX before deciding whether we should invest in Southeast Asia's leading stock exchange.