Singapore Exchange’s Michael Syn says that when economic barriers to trade come down, offshore jurisdictions like SGX can benefit by showing their worth for hedging exposure.
The “big three” Asian markets – India, Japan and China – taken together account for about 25 percent of world GDP and 40 percent of world population. But each is regulated very differently and therefore the elements of risk in those countries will not be proxies for each other, Syn said. Each will behave in a distinct way. This makes it difficult for investors to hedge risk among them, which is where SGX comes in. It’s offshore status keeps SGX somewhat insulated from the vagaries of those markets, so investors can come to the exchange whether they need to hedge equities, currency, freight exposure, or steel manufacturing exposure.
And SGX is expecting a lot more demand. Currently, SGX handles about 40 percent of the Indian equity markets, about 20 percent of the Japanese equity market, and 30 percent of the Chinese equity markets. Because these markets are still relatively immature in China and India, there is a lot of potential for growth, Syn said.
“The challenge I see for us is when you have sudden changes in capital access or capital market infrastructure you deal simultaneously with a constricting supply of liquidity and a much greater demand for liquidity. And you have to deal with both at once while making sure your marketplace is still fair, orderly, transparent, safe, efficient.”