Stockmarket ADT was a low S$0.79b in Dec 08. Stockmarket ADT was S$1.07b for the period of Oct-Dec 08, sharply lower than the S$1.29b for Jul-Sep 08 period (figure 2). The Dec 08 ADT of S$0.79b is especially lacklustre.However, there has been some pick-up in activity over the past few days, with S$1.6b and S$1.4b recorded for 5 and 6 Jan 09 respectively. The key question is whether this sudden surge in stockmarket activity could be sustained goingahead. We believe the optimism arising from the new US president and the upcoming 22 Jan 09 Singapore Budget could lead to more trading activity in the short term, but this may die down thereafter, as economic concerns remain. Hence, we still maintain our base-case stockmarket ADT assumption of S$1.19b for FY09 (S$1.18b for 1HFY09) and S$1.24b for FY10.

Just-released Dec 08 futures trading volume is lacklustre. Nov and Dec 08 futures trading volume of 4.44m and 3.90m respectively is sharply lower than Sep and Oct 08’s 6.47m and 6.84m respectively (figure 3). We see this weakness as a big negative as derivatives clearing fees account for 29% of 1QFY09 overall revenue. We assume the futures trading volume weakness is temporary and are maintaining our FY09 and FY10 futures turnover volume of 72m and 75m respectively – but downside risk exists.

Current SGX share price is factoring a doubling of stockmarket turnover over next few months. SGX traded at mid-teens P/E in 2005 (figure 6), when stockmarket ADT fell 14.5% YoY. We are assuming a FY09 stockmarket ADT decline of 47%, and applying a 13x P/E gives our target price of S$3.95. Our sensitivity analysis (figure 5) shows that a hypothetical S$2.18b stockmarket ADT for FY10 should yield a target price of S$5.50 – the current SGX share price of S$5.65 is therefore factoring a FY10 ADT in excess of S$2.18b (doubled that of Oct-Dec 08’s S$1.07b ADT). We believe the market is over-bullish in this respect. SGX remains a SELL.