INVESTORS in Singapore can now gain direct exposure to five mega-cap companies listed in Hong Kong and tap into more opportunities to diversify their portfolios through new Singapore Depository Receipts (SDRs).
The Singapore Exchange (SGX) announced on Wednesday (Oct 30) that it will launch Hong Kong SDRs together with Phillip Securities, enabling investors to “express thematic views on evolving global trends” in artificial intelligence, electric vehicles and financial markets.
SGX’s new Hong Kong SDR, available for trading from Oct 30, will cover Alibaba, Tencent, BYD, HSBC and Bank of China – representing the technology, consumer discretionary and financial sectors.
The SDR is an unsponsored depository receipt that provides holders with a beneficial interest in an underlying security. Each SDR can be converted into the underlying security through an issuance and cancellation process on a one-to-one basis.
Hong Kong SDR versus investing directly overseas
The ratio of the Tencent and BYD SDRs to their underlying shares is 10:1. The ratio for Alibaba and HSBC SDRs is 5:1, and 1:1 for Bank of China SDRs.
For these SDRs, investors will have access to lower minimum investment amounts in Singapore dollars, which range from 2 to 20 per cent of the underlying stocks. This is expected to offer greater flexibility in portfolio management.
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For instance, an investor trading BYD in Hong Kong will need a minimum investment of S$25,000, as BYD shares are priced at HK$288 (S$500) on the Hong Kong Exchange (HKEX), with a board lot size of 500 shares.
With a 10:1 ratio, each BYD SDR will be priced at S$5 on the SGX. Since SDRs are traded in board lots of 100, the minimum investment for BYD SDRs will be S$500, which is 2 per cent of the cost of the Hong Kong shares.
The Hong Kong SDR offers several other benefits, including trading on SGX’s securities market during local hours and in the Singapore currency, with dividends also paid in Singapore dollars.
Investors can trade the SDRs through local brokers, saving on overseas trading, foreign exchange and management fees. However, local brokerage and exchange fees still apply.
They can also trade before the Hong Kong market opens, during overlapping hours with the US pre-market.
Accessible investment options
Serene Cai, head of securities trading at SGX, said that the exchange has observed growing investor adoption of SDRs as part of portfolio diversification, primarily due to the convenience of trading during local trading hours and in Singapore dollars.
“With the expansion to Hong Kong securities, at smaller investment amounts, we are increasing accessibility and affordability for investors to these (underlying securities),” she added.
“This provides added flexibility for investors to diversify their portfolios and manage risk across a wider range of assets.”
SGX noted that the Hong Kong SDR launch complements the existing range of structured warrants, daily leveraged certificates, and exchange-traded funds tied to Hong Kong and China assets. This allows for pair trading with these instruments.
The addition also broadens SGX’s SDR coverage, following the launch of three Thai SDRs last year, which has been received positively by investors.
Five more Thai SDRs were added in April this year, doubling the daily turnover, which stood at S$500,000 as at end-September.
The SGX noted that this consistent growth highlights the increasing appeal of SDRs as a “flexible and accessible” investment option for retail investors to capture Asia’s growth.
