The paradigm of Asian financial markets has recently been turned on its head. The Chinese stock market, which has tracked the country’s economic rise, is undergoing an unprecedented slump. Meanwhile, the Japanese stock market has seen huge gains, with the Nikkei closing in on the all-time high it set in 1989.
Loh Boon Chye, chief executive of the Singapore Exchange Group, says the conclusion outside investors should draw from this is the region is not monolithic.
“Asia is large, diverse and complex; it is not one uniform region. But that’s also the opportunity it presents.”
Loh says Asia provides a diverse portfolio for any investor, from the developed economies in the north-east through the growth of India in the south to the “hidden gems” of the south-east.
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That diversity is a major driver of how the Singapore Exchange is building its business.
“We look at the international marketplace as our marketplace,” he says. “We’re serving global investors into Asia and investors in Asia with services globally.”
The Singapore Exchange Group’s domestic market has fewer than six million people, so its strategy is to build a multi-asset exchange whereby investors can access the region from the city-state.
On top of shares traded on its equity exchange, the group has contracts ranging from FX derivatives to iron-ore futures and freight-shipping indices.
Loh says this provide different avenues for exposure to the region’s dozen or so economies.
He points to iron-ore futures as a proxy contract for global economic growth, while FX derivatives can be used to further amplify investment gains.
“Asian equities returns, particularly in the emerging markets, could be accentuated by the currency,” he says.
The exchange is playing to Singapore’s advantages of being at the centre of south-east Asia, as well as its financial heart and a gateway for investment.
Loh says the slowdown in China has spurred more interest in the middle economies of Asia, particularly Indonesia and Vietnam. FX derivatives and equity index derivatives are two major contracts that provide exposure from Singapore to these countries.
The exchange also launched a partnership with the Thai stock exchange last year, whereby deposit receipts can be traded on one exchange based on stocks issued on the other.
“An investor can always go to a particular market directly. But most investors don’t just trade one market or a few select markets today,” he says. “Asia has idiosyncratic risk and different countries are going through different stages of growth. We as a platform are trying to simplify Asia for an investor.”
Loh says that despite the pessimistic news coming out of China, the country is still an important driver of growth in Asia and continues to grow at 5% annually. It also remains an important holding for the exchange’s clients.
Singapore has also long competed with Hong Kong to become Asia’s main financial hub. In recent years, Covid, China’s new national security law and the real estate crisis on its mainland have dented Hong Kong’s reputation, which has worked in Singapore’s favour.
But Loh doesn’t think competition is so beneficial for exchanges. Instead, he prefers collaboration — a key theme of his two-year term as chair of the trade association World Federation of Exchanges.
“We think the marketplace, investors and companies will benefit if exchanges work together to promote and grow the ecosystem.”
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The Singapore Exchange has tie-ups with the New Zealand Exchange on dairy derivatives and the Shanghai exchange on ETFs, as well as its deposit receipts deal with Thailand Exchange. Loh says those partnerships have helped to make it a one-stop shop for exposure in Asia.
“It’s not one exchange versus another,” he says. “Over the years, we’ve been looking to partner with other exchanges where we could collectively grow the marketplace.”
Exchanges in Europe and North America have been diversifying away from trading business, going into software, data and analytics. Part of their motivation is to create revenue streams from predictable, recurring subscriptions rather than trading volume fees, which can be volatile and fluctuate with trading activity
But Loh says the Singapore Exchange has no plans to follow suit. He believes the diversity of Asia means that if trading activity slows down in one country, it can be made up for in another. “We look at the region of Asia as a whole as a market of recurring activity. In the business of providing access, I get recurring activity, even though the mix…
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