The Malaysia-Singapore stock market linking proposal is set to benefit retail investors, in particular, says DBS Group Research.
“It has the potential to increase securities revenue for the Singapore Exchange (SGX) and generate interest, particularly among retail investors.”
DBS Group said allowing investors to trade and settle shares in each other’s markets will be a big change.
It will make the initiative different from the Central Order Limit Book (CLOB) set up in 1990.
The SGX and Bursa Malaysia (BM) are set to be connected by a trading link by the end of this year.
It will allow investors to trade and settle shares in both markets in a more convenient and cost-efficient way.
CLOB closed less than a decade later after it was deemed to be an “illegal market” by the Malaysian government.
“Retail investors, who unlike funds, may not already have their own access to multiple markets through existing channels may benefit,” DBS Group said.
The trading of Malaysian shares
The trading of Malaysian shares represented about a fifth of average monthly turnover on SGX between January-August 1998.
While it is too early to gauge the real-time benefits, every 1 per cent increase in securities daily average trading value would increase securities revenues by 0.9 per cent and net profit by 0.4 per cent, said DBS.
Similarly, CIMB Research said that the initiative would likely benefit retail participants more than institutional investors.
Similar sectors and companies listed on the SGX trading at lower valuations than their peers on Bursa could be potential beneficiaries.
“If successful, this BM-SGX trading link could result in higher trade turnover, replicating the success of the Hong Kong-China stock connect, said CIMB.
It cited higher cross-border trading and investment flows as an example.
Both brokerages noted that the Asean Trading Link started in 2012 had not been successful.
But lessons drawn from the failed Asean Trade Link should propel better coordination between both governments going forward.
With the arrangement being a government-to-government effort, this implies a higher possibility of success, said DBS.
Both have a “buy” rating on the SGX.
DBS has pinned a target price of S$8.90 on the stock, while CIMB carries a target price of S$8.50.