Singapore & Sydney: Shall We Dance?

The proposed merger between Australian Securities Exchange (ASX) and Singapore Exchange (SGX) is both understandable and questionable. The deal might face political opposition in Australia. A parliamentary approval is required since Singapore’s government (which owns 23% of SGX) is involved. The 8.4-billion-dollar take over from Singapore, if approved, will confirm a 20-year-old prophecy by a former Australian prime minister: the destiny of the country will be determined by its geography rather than its history; which means more Asia, less Europe. On the other side, Singapore pays a premium price 40% higher than the current listings of ASX toaim at some sort of regional leadership. Its notorious “competitive edge” did not enable the city-state to reach Hong Kong, whose Stock Exchange (HKSE) registers bigger market capitalisation and quality of listings, higher number of IPO’s and more lucrative revenues. Some Chinese companies listed in Singapore have been associated with fraud and scandals which tainted the impeccable reputation of the island. If the political and technical obstacles will be overcome, the combined Stock Exchange will rank, as per capitalisation, 4th in Asia and 8th in the world. It is a leap forward , both for AGX (now 11th) and SGX (21st), but still below HKSE (7th). The new total number of listed companies will reach 2.739, compared with HKSE’s 1.365.
The rational of the merging is to offer the investors a bigger liquidity to draw listings and tradings. The same purpose drove the former mergers: NYSE & Euronext, Nasdaq & OMX, Deutsche Börse & International Securities Exchange. Its ambition is to create a Pan-Asiatic institution, even if it is difficult to threaten the competitors from Japan and China. Hong Kong still is the privileged destination for the Chinese companies and there is no immediate forecast it might lose its leadership. In 2009, Hong Kong attracted more funds than Shanghai and Shenzhen combined. At the same time, the 3 Chinese Stock Exchanges ranked together number one in the world. Moreover, Chinese companies listed in Hong Kong, 566, are almost 3 times as much of those in Singapore and Sydney combined. Finally, their performances in Hong Kong are 3-4 higher than Singapore. So, no threat for North Asia markets, but rather a push to a larger integration in South East Asia. At the horizon there are theoretical long term benefits but few short term synergies or savings. On the southern side of the continent, Singapore and Sydney can focus on the non-Chinese Asia, to safeguard their field of operations. Just this, might be a good news. A double-digit-growth Region is ready to have multiple financial centers, where China can drive the rise, even without its the full control.

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