SGX threatened by sluggish cash equities business

Derivatives may be the saving grace.

According to CIMB, FY13 core profit was very close to its forecast and consensus. The 4Q reported net profit of S$87.6m included $15m non-cash impairment for its BSE stake.

However, CIMB noted that the weakness is the cash equities business. Without the F&N deal propping up activity, ADV fell from S$1.7bn in 3Q to S$1.6bn and turnover velocity slipped back to 55%, from 59%.

Here's more:

SGX is pushing a lot of initiatives to spur retail participation but that is not moving the velocity needle much for now. We also note the lower dividend payout of 89%.

Derivatives volume continued to scale new highs. Futures & options volume rose 8% qoq while open interest increased 11% qoq from an already strong 3Q13.

The Nikkei 225 and the China A50 contracts were particularly popular during these two quarters asChina’s growth concerns mount and marketslapped up Abenomics. OTC iron ore contracts also tripled in the year. The positives for SGX are all on the derivative side of the business.

With Indonesian, Thai and Indian derivative contracts and new FX products in the pipeline, we think this engine will still hum ahead.

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