Wasted opportunity: SGX drops ASX trading link

I remember when the Singapore Exchange and the Australian Stock Exchange announced with great fanfare the launch of WorldLink in 2001. It was supposed to allow retail investors in each country to buy shares in companies listed on the other market. Initially, just a handful of companies were included, but it was a virtual treasure trove. All of a sudden Singapore investors had access to Australian bluechips such as BHP Billiton, Rio Tinto, the major banks, Qantas, Telstra, and so on. Likewise, Australian investors had immediate retail access to Singapore-listed banks, as well as Singapore Airlines and a host of other bluechips.

But this was not the strongest selling point. Afterall, why should Australian investors buy shares in Singapore banks when they can buy shares in Australian banks. But critically, it gave investors in each market the opportunity to get exposure to sectors not available to them in their home markets. For example, Singapore investors could gain easy access to the mining sector. And Australian investors, who wanted to gain exposure to the electronics and manufacturing sector could buy a host of stocks that fitted the bill.

It was also easy to assume that the strong ties between the governments of the two countries would filter down to investors. Afterall, many Singaporeans have a strong affinity to Australia, and thousands of Australians flock to or pass through Singapore during their holidays.

But the link failed miserably. Trading volumes were tiny by most accounts (although never formally disclosed), and mostly coming from Singapore investors chasing Australian stocks. In February this year, the ASX closed its part of the link, and today the SGX announced formally what had been known to shareholders for a few weeks, that the SGX-to-ASX link would also be closed down.

The SGX is putting on a brave face. It has learnt a lot from the experience, it says, and could apply that to other proposed links, such as to Bursa Malaysia.

There is certainly some truth to that, but why couldn’t they make the Australian link work?

There are four very easy answers to this.

First, marketing. I don’t recall seeing a lot of promotion of the link. And anyway, promoting the link alone was not enough. The companies that investors had access to should have been pushed more, and in a more concerted effort. Sure enough, Singaporeans and Australians know a little about the companies in each market. But there certainly isn’t the sort of familiarity which is so important to make investors feel they can trust the companies in the other market. Familiarity with companies and their products and services is critical in every market, for the stocks of those companies to be liquid.

Second, cost. When the link was first launched in 2001 I spoke to my broker in Melbourne about buying shares and was told it would cost A$180 per trade. A normal trade with the same broker cost A$110 (it’s a full-service broker). Anyway, forget it. Way too expensive.

Third, access. Internet trades cost A$24.95, but SGX-listed counters were not available for trade through the Australian web-based trading platforms. Similarly, it wasn’t possible to buy ASX-listed shares through POEMS and other Singaporean online platforms. In theory the idea was to give retail investors equal access, but it certainly didn’t happen in practice.

And fourth, depth of retail investor base. Australia has a large but parochial retail shareholder base. That may sound unkind, and I’m certain there are those who are not parochial. But for the masses, there is no doubt about it. Go and ask them. They’ll tell you. And Singaporeans are by their nature not as parochial, which would explain why they did use WorldLink to buy Australian shares, but there are far fewer of them.

I regret very much that the link didn’t work. I don’t have a financial stake in it, or any other interest for that matter. But I thought it was a fantastic idea that was extremely poorly executed. I just hope that the folks at the SGX and Bursa Malaysia learnt from the experience when they get their (long-delayed) trading link up and running.