Poised for next spurt of growth

Poised for next spurt of growth

THE financial landscape has undoubtedly been very tough since the global financial crisis (GFC) of 2008.

Since then, financial sector regulation has tightened, giving firms less leeway to hunt for profits. The sector has lost more than its former glory; it has been cast as a global villain and villified for its greed in bringing the world economy to the brink.

Meanwhile, Main Street investors, shell-shocked by the meltdown in financial asset prices in 2008 and early 2009, have yet to recover their verve to venture back into the market.

Anaemic growth in the US economy and the threat of it falling over the fiscal cliff; the eurozone debt crisis; and slowing growth in China - individually, each is enough to make investors edgy; when combined, they cause paralysis.

Against this backdrop, the Singapore Exchange (SGX) has done a creditable job of continuing to keep its cash register ringing. In the financial year ended June 30, 2012, it raked in $292 million in net earnings. That's a decline of 39 per cent from the record earnings of $477 million recorded in 2008. Still, this is a more than 160 per cent jump - or a compounded annual growth of 15 per cent - from its earnings in 2005. Today, it is the sixth most valuable exchange in the world.

Meeting needs

SGX has managed to stay afloat by making use of its efficient infrastructure to serve up the products most needed by the market. When interest in equities waned, it stepped up its offering of bonds and derivatives. It also launched various new contracts to cater to the need for stability and predictability amid the market volatility.

In its favour, SGX is not only defending its turf well in the current difficult environment, but also positioning itself for its next spurt of growth.

"The key for us - once growth starts in the US or in Europe - is how we remain in the flow of finances between Asia and the West," says SGX president Muthukrishnan Ramaswami.

"For us, it's all about financial intermediation. How do our contracts remain relevant? How do our stocks remain relevant?"

Mr Ramaswami is sanguine about Asia's prospects and by extension, the future of SGX. If Europe grows at 3 per cent, Asia has to grow at 10, he reasons.

"If you look at the demographics, the percentage of the world that live in Asia, which is still relatively poor compared to the developed world, is very, very high. If we take the infrastructure needs in Asia in the next 10 years, it's as much as having to reconstruct Europe after the Second World War. It's a huge amount of infrastructure that needs to be built."

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