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Singapore. Singapore Exchange, Asia’s second-largest bourse by market capitalization, posted a 13 percent fall in fourth quarter net profit and warned expenses would continue to rise as it spent more on technology.

But SGX said it was confident about the future and that heavy investment in IT and the launch of new investment products and trading platforms would translate into higher revenues in coming years.

SGX and Asian rivals such as Hong Kong Exchanges and Clearing have seen new listings and stock trading volumes fall in recent months due to uncertainty about Europe and fears Chinese economic growth will slow.

Christian Nolting, lead Asia-Pacific strategist at Deutsche Private Wealth Management, said he was bullish about Asian stock exchanges despite a recent fall in volumes and concerns that alternative trading platforms could take market share from incumbents and drive down margins.

“The money flows coming into Asia — that is what is important,” Nolting said. “Flows to Asia are very strong and that would mean more trading volumes, which would be positive for the stock price.”

The region’s bourses are also investing heavily in IT to facilitate the rollout of new investment products, attract players such as high-frequency traders and fend off competition from “dark pools” and other alternative trading platforms.

SGX earned 79.6 million Singapore dollars ($58.8 million) between April and June, down from 91.2 million Singapore dollars a year earlier. Income from securities fell 11 percent to 72.4 million Singapore dollars from a year ago while income from derivatives dipped 4.5 percent to 34.2 million Singapore dollars.

SGX Chief Financial Officer Seck Wai Kwong said SGX’s capital expenditure in the financial year ended June 2011 would be in the region of 60 million Singapore dollars to 65 million Singapore dollars, up from 55 million Singapore dollars in full year 2009-10 and 37 million Singapore dollars in 2008-09.

SGX shares were up about a percent, in line with a 0.9 percent gain in Singapore’s benchmark stock index.

SGX and HKEx, which have seen their shares fall about 7 percent this year, have fared better than regional rival the Australian Stock Exchange.

ASX shares have tumbled about 17 percent this year, hurt by a decision to open the market to new players such as Japanese investment bank Nomura’s Chi-X, a dark pool operator that has made strong inroads in Europe and Canada.

Dark pools are alternative trading platforms that allow brokers and fund managers to place and match large buy and sell orders anonymously so as to not to influence the share price.

“Any market that wants to develop needs to have more venues. It’s a requisite for our market to grow,” CEO Magnus Bocker, who joined the exchange in December, said.

“It’s more a question of how long a time it will take to build this up. There is, to me, no doubt that it will come,” added Bocker, who has introduced new products such as gold, Robusta coffee and Nikkei dividend index futures to boost volumes on SGX.

SGX reiterated it expected to launch its Chi-East dark pool joint venture, trading American Depositary Receipts of Asian companies, and clearing of OTC derivatives such as interest rate swaps this year.

SGX’s net profit for the full year rose 5 percent to 320 million Singapore dollars — its second-best-ever annual performance after the fiscal year ended June 2008.

Bocker said he was bullish about prospects due to a strong pipeline of initial public offerings and a rise in the number of companies that had signed up to trade on SGX.

 
Reuters