A Trading Gateway to Asia’s Financial Ascent

Erik@YWR on Singapore Exchange Ltd. (S68-SES | singaporeexc)

4/17/2025

Summary

Singapore Exchange Ltd. (SGX) is a structural beneficiary of Asia’s rising economic influence, deepening capital markets, and global investors’ diversification away from concentrated U.S. equity exposure. With monopoly-like characteristics, a high-margin business model, and dominance in Asian derivatives and risk management, SGX is poised to deliver a 14% earnings CAGR through 2027. We forecast shares rising ~50% to S$20 by 2027, driven by earnings growth and a sustained 25x P/E multiple, alongside 6% in dividends between now and 2027. Key catalysts include growth in Asian equity derivatives, FX/commodities hedging demand, and SGX’s strategic pivot to become Asia’s premier risk management hub.

Thesis

1. Macro Backdrop: Asia’s Ascent and the Diversification Imperative Global portfolios are disproportionately allocated to U.S. equities (S&P 500 at ~65% of global market cap weight), creating concentration risk as Asia’s GDP growth outpaces developed markets. By 2027, Asia is projected to contribute 60% of global GDP growth, led by India (6-7% CAGR), ASEAN (4-5%), and China (4-5%). This divergence will force institutional rebalancing into Asian equities and related hedging instruments. *Equity inflows: Asian markets trade at a discount to U.S. equities on P/E, with higher earnings growth. *Hedging demand: Volatility from geopolitical tensions (U.S.-China tech decoupling, Taiwan risks), commodity supply shocks, and FX instability (CNY, INR, KRW) will drive volumes in derivatives. *Singapore’s neutrality: As a trusted, apolitical hub, SGX stands to capture flows diverted from Hong Kong amid China’s regulatory crackdowns. SGX is uniquely positioned to monetize these trends through its dominance in Asian equity index futures (MSCI China/India), FX derivatives (CNY, INR, KRW), and commodities (iron ore, freight). 2. SGX’s Business Model: Monopoly Economics with Operating Leverage Exchanges are natural monopolies due to network effects, regulatory moats, and high switching costs. SGX’s 59% operating margin (1H 2025) reflects pricing power and a fixed-cost base (technology, compliance), enabling incremental revenue growth to flow directly to profits. *Derivatives dominance (53% of revenue): Equity derivatives (28%): SGX is the offshore hub for MSCI China and India index futures, critical for global investors restricted from onshore markets. Volumes will rise as India’s weight in global indices climbs. FX/Commodities (25%): SGX’s USD/CNH futures are the most traded offshore, while iron ore derivatives (+13% YoY in 1H 2025) benefit from urbanisation in emerging markets. Data & indices (18%): Recurring, high-margin revenue from benchmarks like FTSE China A50 and proprietary ESG indices. Cash equities (29%): Singapore’s status as a Southeast Asian IPO hub (e.g., tech unicorns, SPACs) supports listings growth. 3. Financial Outlook: 14% EPS CAGR with Margin Expansion SGX’s revenue is forecast to grow at 12 CAGR% through 2027, driven by derivatives cash equities and data/index subscriptions. With fixed costs growing at just 5%, operating margins expand are 60% by 2027, translating to 14% EPS growth (S$0.81 in 2027). Valuation: At 25x 2027 EPS (in line with historical multiples for growth-focused exchanges), SGX shares reach S$20 (50% upside). A 6% dividend yield provides downside cushion.

Risks

Exchanges are volatile businesses. Both the earnings and valuation are sensitive to capital markets growth. In a downturn both trading volumes and valuations can fall together.

📈 Price Targets

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