The Singapore Exchange S68 (SGX) has launched five Hong Kong underlying stocks in its Singapore Depository Receipts (SDRs) offering, while lowering minimum investment sums to as little as 2% of what an investor in Hong Kong would typically pay, confirming an Oct 18 report by The Edge Singapore.
SGX launched Hong Kong SDRs on Oct 30 for five mega-cap companies: BYD Company, HSBC, Bank of China, Alibaba and Tencent.
SDRs are instruments each representing beneficial interest in an underlying security listed on an overseas exchange. They are issued on an unsponsored basis, and the issuer does not have a formal agreement with the underlying company.
Unlike the standard board lot size of 100 shares for SGX-listed issuers, lot sizes in Hong Kong are determined by each issuer. For example, shares in the Hong Kong-listed BYD trade at around HK$288, or approximately $50. As BYD’s lot size is 500 shares, an investor trading on the Stock Exchange of Hong Kong (SEHK) would need a minimum investment amount of $25,000.
Each Hong Kong SDR is backed by the underlying share based on a certain ratio. The ratio for BYD SDRs to the underlying shares is 10:1, where 10 SDRs represent 1 BYD share. At this ratio, each BYD SDR would be priced at a tenth of $50, or $5, on SGX.
SDRs, like SGX equities, are traded in lots of 100 shares. Hence, the minimum investment size would be $500 for BYD SDRs, which is roughly 2% of the $25,000 that would have been needed if the trade had been completed in Hong Kong.
See also: SGX to launch Singapore Depository Receipts for Hong Kong stocks within 4Q2024: source
Tencent, which has a lot size of 100 shares in Hong Kong, has a similar ratio to BYD, at 10:1. Alibaba, which has a lot size of 100 shares in Hong Kong, has a 5:1 ratio; and so does HSBC, which has a larger lot size of 400 shares in Hong Kong. Finally, Bank of China, which has a lot size of 1,000 shares in Hong Kong, has a 1:1 ratio.
This means HSBC SDRs boast the next largest reduction in investment needed after BYD SDRs, at around 5% of a minimum trade in Hong Kong. Alibaba, on the other hand, would have the smallest reduction in investment needed, at around 20% of a minimum trade in Hong Kong.
More Thai SDRs to come
See also: Making the Singapore market great again
SGX has again partnered Phillip Securities to launch the Hong Kong SDR, after launching Thai SDRs in May 2023 in the underlying securities of Airports of Thailand, CP All and PTT Exploration and Production.
SGX launched five more Thai SDRs on April 1, representing the securities of Advanced Info Service, Delta Electronics, Gulf Energy, Kasikorn Bank and Siam Cement.
According to SGX, daily turnover of Thai SDRs doubled to $500,000 in the six months till Sept 30.
SGX started exploring Hong Kong SDRs in 1Q2024 while expanding the number of Thai SDRs available, says Serene Cai, head of securities trading, equities at SGX Group.
Cai tells The Edge Singapore that the bourse is working with issuer Phillip Securities to identify other popular Thai-listed stocks. Siam Commercial Bank and Bangkok Dusit Medical Services are two names “that have been floated around” to become potential Thai SDRs, Cai adds.
Cai says a growing number of investors have begun trading SDRs for the “convenience” of trading in local time and in Singapore dollars. “With the expansion to Hong Kong securities, at smaller investment amounts, we are increasing accessibility and affordability for investors to these underlying [stocks]. This provides added flexibility for investors to diversify their portfolios and manage risk across a wider range of assets.”
Leaders from Asean’s stock exchanges agreed in July to explore offering depository receipts (DRs) on their respective exchanges. According to Cai, a related announcement is expected in the coming months. “There will be more news around that in the next month or so.”
