The mooted trading tie-up between SGX and Bursa is unlikely to be revived for now as industry players look to Asean and beyond for the real game.
Plans for a trading link between the Singapore Exchange S68 (SGX) and Bursa Malaysia were announced on Feb 6, 2018, with both sides aiming to launch the link by the end of that year. However, five years later, the trading link between the two bourses remains in the realm of ideas.
Besides hinting at closer ties between the two countries, the link had also boasted some practical purposes. According to the 2018 joint statement by regulators from both countries, the link covered post-trade arrangements, such as the clearing and settlement of traded stocks, offering easier, seamless trading. There was a long list of associated benefits: lower trading costs, improved liquidity and more investor convenience.
“The trading link will allow investors to trade and settle shares listed on each other’s stock market in a more convenient and cost-efficient manner,” said the Monetary Authority of Singapore (MAS) and the Securities Commission Malaysia (SC) in the statement on the trading link, which was announced with much fanfare.
Malaysia was under former prime minister Najib Razak when the trading link was announced. Speaking at the World Capital Markets Symposium hosted by SC that same day, Najib said investors on both sides of the Causeway would enjoy easier and seamless access to each other’s markets. “This exciting initiative will indeed widen investment options for investors and contribute towards greater activity and vibrancy in both markets,” said Najib, who served as the Malaysian PM from April 2009 to May 2018.
Lee Boon Ngiap, then assistant managing director of capital markets at MAS, added: “The trading link will help lower trading costs for investors and encourage greater cross-border investments in the stocks listed on each other’s exchanges. This will improve the liquidity of both our stock markets. I hope this initiative will expand to include the rest of the stock exchanges in Asean.”
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The proposed trading link was announced amid tighter links between the bourses of Hong Kong and China. The Stock Connect, which allows international investors to invest in China-quoted stocks, saw an expanded list of Chinese stocks that can be included in this trading link since last December.
No longer a ‘major priority’
The SGX-Bursa announcement, however, was made just three months shy of Malaysia’s 2018 general elections, where the Pakatan Harapan coalition unseated the ruling Barisan Nasional. Following the historic defeat, plans for the “Malaysia-Singapore Connect” were put on hold indefinitely by the incoming PM Mahathir Mohamad, whose administration reportedly feared more outbound activity from Malaysia.
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Following Mahathir’s resignation in 2020, Malaysia’s leaders said in December 2021 that the plans were back on the table. In a media interview during a visit to Singapore, former Malaysian finance minister Zafrul Abdul Aziz said the plan could be revived in “a different format, a different model”.
Formerly CEO and executive director of CIMB Group, Zafrul was appointed finance minister in March 2020 and reappointed in August 2021 by former PMs Muhyiddin Yassin and Ismail Sabri Yaakob, respectively. Following last November’s general election, Zafrul was appointed Malaysia’s Minister of International Trade and Industry.
further the plans and launch the project by end-2022. However, Bursa’s executives reportedly disagree. While the trade link is “on the table”, it is no longer a “major priority” in its current form, Bursa chief executive Muhamad Umar Swift told The Straits Times in February 2022. “If we want to have a trading link providing seamless access to the market, we need to build something more efficient and better than what we already have.”
Muhammad Umar tells The Edge Singapore in a recent interview that the bourse had conducted a study to explore the potential models and value of having such a trading link. After considering “all options and various access points”, the Malaysian bourse concluded that there is “no immediate need” to further the plans.
“Currently, cross-border trading, clearing and settlement are facilitated via inter-broking. Given the above and the lack of interest from the market or broker, both exchanges have agreed to keep the initiative in view for now. Hence, there is unlikely to be a revival on the near-term horizon,” says Muhammad Umar.
At this juncture, establishing a trading link with any other exchanges is not a priority for Bursa. This is amid brokers’ regional expansion, a boom in online trading since the Covid-19 pandemic and increasing digitalisation, enabling easier access between markets. Therefore, the value proposition of any new cross-border linkage initiative needs to be clear, says Muhammad Umar.
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“Nevertheless, we are always open to exploring connectivity facilitation with any peer markets that will benefit both markets. In essence, all cooperation discussions that we have, either bilaterally or via the Asean Exchanges collaboration, will be guided by a holistic and needs-based approach,” he adds.
Asean Exchanges refers to a collaboration of the exchanges of Singapore, Malaysia, Vietnam, Indonesia, the Philippines and Thailand to promote the growth of the Asean capital market by bringing more Asean investment opportunities to more investors.
Launched in 2012, the collaboration works with partners to build greater liquidity amongst members by streamlining access to and within the region, driving cross-border harmonisation, creating Asean-centric products and implementing targeted promotional initiatives.
Muhammad Umar adds that Bursa focuses on boosting trading volumes and expanding its customer base by expanding its product offerings and improving its services. For example, the bourse has launched the world’s first shariah-compliant carbon exchange and extended the after-hours trading session for selective derivatives contracts.
It has also launched Bursa Connectivity Services, a universal connectivity solution allowing global users to access the exchange’s data pool quickly and seamlessly. The product covers over 900 data centres in 32 countries spanning Asia, Europe and the US. According to Bursa, the solution allows users to create new financial products, analyse trading opportunities and meet the growing demand of investors.
SGX weighs in
A bridge between the bourses could still be possible at the five-year mark. A managing director at SGX recalls that the proposed link was mooted at a “very high level”.
“[The] key considerations were around synergies and benefits that this link may bring to both markets,” says Janice Kan, who is also head of markets, equities, at SGX.
Kan has spent more than three decades in the exchange industry. During her career with SGX, Kan pioneered the SGX exchange-traded fund (ETF) platform, China Access products, non-deliverable forward (NDF) currency futures and offshore renminbi (RMB) clearing capabilities.
Between 2013 and 2019, Kan oversaw SGX’s market development and business strategy for the Greater China region. Kan also played an instrumental role in building SGX’s multi-asset derivatives business in equities, fixed income, currencies and commodities. At the release of the bourse’s 1HFY2023 ended December 2022 results in February, Loh Boon Chye, CEO of SGX Group, says the derivatives business has “continued to outperform” with a 28% y-o-y increase in revenue.
In an interview with The Edge Singapore, Kan says that the Singapore and Malaysia bourses did not get to further those plans when Mahathir’s administration suspended the project. “Malaysia has always been close to our hearts because of our shared history. As such, some participants may view the trading link with Bursa as logical.”
Kan adds: “It’s hard to say definitively if the link will ever happen because the outcome will depend on the stakeholders involved and the market environment. We are currently focused on implementing the depository receipt (DR) linkage with Thailand and our strategic initiatives with China and India exchanges.”
The links between the two exchanges are somewhat similar to the historical links between other organisations and institutions of the two countries, formally one between 1963 and 1965. Our national flag carriers are a prime example: Following the separation of Singapore, the assets of Malaysia-Singapore Airlines were divided in 1972 to permanently form two separate and distinct national carriers — Malaysian Airline System (since renamed Malaysia Airlines) and Singapore Airlines.
In the same vein, the stock exchanges of Singapore and Malaysia have had a rich, interconnected history. The Malayan Stock Exchange was established in 1960. When the public trading of shares commenced, the trading rooms in Singapore and Kuala Lumpur were linked by direct telephone lines. The Stock Exchange of Malaysia was established a few years after, before continuing to function under the name Stock Exchange of Malaysia and Singapore (SEMS) following the secession of Singapore from Malaysia.
In 1973, the SEMS was separated into the Kuala Lumpur Stock Exchange (KLSE) and the Stock Exchange of Singapore (SES). At this time, Malaysian companies continued to be listed on the SES and vice versa. Eventually, all dual-listed stocks from the SES were delisted, leading to the increasing popularity of the over-the-counter market Central Limit Order Book (Clob), which allows the trading of Malaysian stocks.
However, when Malaysia imposed capital controls and prohibited all offshore transactions of the ringgit at the height of the Asian Financial Crisis in September 1998, it also froze the trading of all Malaysian shares on Clob, hurting many investors — both institutional and retail — in the process. As at Aug 31 that year, 197,000 investors held Malaysian shares on Clob, 90% of which were Singaporeans.
In response to a parliamentary question, then deputy prime minister Lee Hsien Loong said the closure of trading of Malaysian shares on Clob is a loss to Singapore’s financial sector, but not a significant one.
In 1997, the stock market accounted for 10% of the financial sector’s value add, or 1.1% of overall GDP. Meanwhile, Clob represented about 24% of the SES’s turnover at that stage. From June to August 1998, however, Clob’s share had declined to only 3%– 8% of the total turnover in the stock market. Additionally, since the closure of Clob trading of Malaysian shares, retail investors began channelling their interest into Singapore shares. The following year, SGX was established.
Since then, SGX, recognising its small market, has tried to put on an outward-looking perspective, positioning itself as an Asian “gateway”. The trading link mooted with Bursa is not the first. Back in 2001, a link was established with the Australian Stock Exchange. However, that link was shut down in September 2006 due to “persistently low demand”.
Evidently, that was not the end of Singapore’s affection towards Australia. In 2010, SGX tried to acquire the Australia Stock Exchange for $10.7 billion to form a combined entity that would be the second largest listing avenue in Asia Pacific, and to also form the fifth largest listed exchange group in the world. However, the deal was scuttled after Australian authorities refused to give their blessings.
Regarding market connectivity, SGX’s Kan speaks of shared prosperity and “mutual win” situations. “We have always believed that mutual interconnectivity provides increased visibility to the Asean markets, which is good for the region. An integral part of what we deliver for global participants is trusted and efficient market access, and this can only be achieved by strengthening our partnerships with international participants and key stakeholders in Asean and Asia.”
She acknowledges that not every collaboration is successful. However, SGX has “pockets of success from time to time”. These are important “so people continue to believe” in the region’s potential, adds Kan.
She further highlights the Thailand-Singapore DR Linkage, which is nearing completion. First announced in September 2021, the link will allow depository receipts representing shares in SGX-listed security to be issued for trading on The Stock Exchange of Thailand (SET) and vice versa.
The link is about 75% complete, with the launch expected in the next six to nine months. When ready, it will mark the first exchange-level DR cooperation in Asean. “Thailand and Singapore are two of the largest stock markets in Southeast Asia. It’s natural for us to work together on growing the markets and paving the way for broader Asean collaboration,” says Kan.
The DRs will trade according to their respective home market rules and regulations. “Harmonisation of rules across markets is a big complex step that cannot be easily realised. In the DR linkage with the SET, we have adapted the model to reference home market rules and leave the issuers to identify stocks relevant for domestic investors to trade in the local currencies,” she adds.
Kan says Singapore’s main advantage is its REITs framework. “While the three local banks are popular with retail and institutions, start-ups and thematic stocks also add flavour to our market.”
Kan emphasises a “sniper approach” when scouting for such tie-ups. “We can sometimes arrive at the right collaboration model after deeply understanding the different market structures. Even then, we need to seek the right timing and a conducive market environment to execute, which can be difficult to predict.”
Asean Connect
Beyond bidirectional trading links, the wider goal is Asean-wide collaboration. Former MAS executive Lee, Bursa’s Muhammad Umar and SGX’s Kan all allude to a regional tie-up believed to be “long overdue”.
Kan hopes projects like the Thailand-Singapore DR Linkage can test the commercial viability of a wider link. “I think this is long overdue for developing the Asean markets in the region.”
Kan says the region holds much upside potential for investors. “Asean as an investment theme has always been underappreciated, although it presents unique opportunities,” she says.
By 2030, the Asean economy is predicted to eclipse Japan’s, becoming the fourth-largest single market after the EU, US and China, according to the Asean Development Outlook report released in August 2021.
Kan is wary of comparisons with the EU, another regional bloc. “It’s more challenging in Asean because it comprises markets with diverse characteristics, unlike the EU, which operates on unified regulations and a single currency,” she says.
The geopolitical positioning of each market in Asean is also different, she adds. “Currently, Asean benefits from its neutral position with the US and China, which makes it attractive for international investors.”
The idea of an Asean Connect that would provide brokers and investors with easy access to the Indonesia, Thai, Malaysia and Singapore stock markets is “still a little ahead of its time”, said Bursa’s Muhammad Umar in February 2022. “The ability to trade is now there more than ever, so we need a better reason to invest in an Asean Connect. We need to offer greater connectivity and efficiency. The whole ecosystem must be on board, which will take time. It is still on the table but not a major priority now.”
Today, Muhammad Umar is still hopeful for Asean Connect. He believes using a product route might be a more viable option for bilateral collaborations within the Asean region, enabling greater visibility of each other’s products. “Bilateral collaborations such as facilitative frameworks and harmonisation of rules can build familiarity, and perhaps industry demand for an Asean Connect in the future,” he adds.
Granted, a former iteration had lasted only five years before being shuttered. Launched by the seven-member Asean Exchanges, the Asean Trading Link went live in September 2012, connecting Bursa and SGX, and offering cross-border securities trading through a single broker. The following month, Thailand’s SET joined the framework, which had been expected to increase annual trading volume by 20%–30%.
Bourses in Hanoi, Ho Chi Minh, Indonesia and the Philippines were also expected to participate eventually. By October 2017, however, SGX quietly pulled the plug by announcing the termination in a public consultation paper. Why was the project canned? Between 2012 and 2016, only SET saw a noticeable increase in the turnover ratio of domestic shares and the total value of equities traded. Trading was inefficient and more costly to investors without a centralised clearing and settlement system. In addition, participating brokers like CIMB and Maybank already boasted their access to the markets involved, making the Asean Trading Link redundant.
Despite this, some parties are hoping for a revival of the Asean Trading Link. A fund management firm CEO tells The Edge Singapore that if greater efficiency and lower cost can be achieved, the trading link would be attractive at this current juncture, given the continued robust and resilient Asean market. However, he also acknowledges this would be difficult to achieve and implement.
Analysts forecast Asean earnings per share to grow 31.3% in US dollar terms in 2022 and 14.3% in 2023 — significantly higher than their global counterparts. For example, the earnings per share growth estimate for Asia ex-Japan is 5.7%, while that for emerging markets is 1.7%.
Beyond Asean
The overhang from that initial Asean Trading Link experiment may dampen interest in two-party links like the SGX-Bursa proposal. “Most investors on both sides can gain direct access to either exchange. Making the trading cheaper or faster is not the only consideration for investors,” says Paul Chew, head of research at Phillip Securities.
With online trading, trading can be done seamlessly without such links, adds Chew. “Unless some index inclusions would compel some flows, don’t expect volumes to improve significantly.”
Instead, it is more important to have marketing efforts that can better inform and educate investors of overseas companies, says Chew. “There are already dual-listed Malaysian companies on SGX. Volumes of these companies are more influenced by news flow.”
IHH Healthcare Q0F , for example, marked the first concurrent dual listing of any company on Bursa and SGX in July 2012. Other counters with listings on both sides include glove maker Top Glove BVA and Malaysia Smelting Corp NPW .
Agreeing, an analyst at a Kuala Lumpur-based boutique stockbroking firm says a trading link setup between Bursa and SGX would boost both sides of the markets. However, many incumbent brokers and online trading platforms, such as Tiger Brokers and Moomoo, already provide extensive products that allow investors to trade globally, as savvy investors in Malaysia and Singapore are focusing on making trades outside the two markets.
“While a trading link may entice investors and help to push trading activities higher, the investor appetite is actually to trade beyond Malaysia and Singapore’s shores,” adds the analyst from KL.
Kana, an investor who trades on both Bursa and SGX, tells The Edge Singapore that if the trading link between the two bourses had materialised, it should have ensured that investors enjoy the ultimate benefit of bearing lower costs, owing to regulated and competitive trading fees.
That said, he points out that it is much easier and cheaper to trade cross-border now compared to when the link was first introduced five years ago. Any new link would then face an “expiry date” — when investors can access markets easily with competitive trading costs.
When asked which markets would be attractive as alternative trading links, Kana cites any developing or frontier markets with limited stockbrokers facilitating trading. Examples of the markets include Indonesia, Vietnam, Saudi Arabia, Turkey and India, to name a few. “Some are more accessible than others, so resources should be allocated most to those least accessible,” he adds.
