SGX warns on near-term market outlook amid flat profit

Singapore Exchange (SGXL.SI), Asia’s second-largest listed bourse by market value, posted better-than-expected quarterly net profit, little changed from a year earlier, but warned that market activity could be affected by global economic concerns.

SGX, whose US$8 billion ($9.6 billion) bid to buy rival ASX (ASX.AX) was blocked by the Australian government earlier this year, is now  concentrating on building its existing business through the launch of new financial products.

SGX has introduced trading of American Depositary Receipts of mostly Chinese companies in Singapore to boost liquidity and is set to launch the world’s fastest trading engine, which analysts hope would kick-start high frequency trading.

However its growth is challenged by stagnant securities turnover, which accounted for 44 percent of operating revenue in its 2010-11 financial year that ended in June.

SGX gave a sombre outlook for the business in the near future as markets globally are hit by concerns over the debt problems in Europe and the United States.

“In the near term, the market is expected to be affected by a variety of significant macroeconomic factors, in Asia, Europe and the USA. These would inevitably impact the primary and secondary market,” it said in a statement.

SGX has fallen behind Hong Kong in attracting mega-listings from global and Chinese companies, and is in danger of losing some of the better-quality Chinese companies listed on its bourse due to the low valuations commanded by these firms.

“The organic drivers will be slow,” said Christopher Wong, a senior investment manager at Aberdeen Asset Management Asia, which owns SGX shares.

“Global exchanges are facing structural issues — low turnover, so many new exchanges are coming through and in a more globalised world you can trade wherever you want to trade,” he added.

Aberdeen’s Wong said acquisitions in Asia will be difficult as an exchange is treated as a “national treasure”.

“Particularly in Asia, a lot of the exchanges are seen as important to the growth of the economy,” he said.

SGX said its April-June net profit was $79.5 million, compared with $79.6 million a year ago. This was above the $67.3 million average forecast from four analysts polled by Reuters.

SGX’s securities market revenue dropped 13% from a year earlier to $63 million.

Derivatives revenue, however, was up almost 3% to $35.2 million.

SGX shares have fallen about 12.7% so far this year,Cunderperforming bigger rival Hong Kong Exchanges and Clearing (0388.HK) which is down about 9%. ASX (ASX.AX) shares are down about 20%.