SGX-Bursa link: Start of a pan-Asean bourse?

WHAT took them so long?

On Tuesday, the stock exchanges of Singapore and Malaysia unveiled a plan to link up "end-to-end" to better enable investors in each market to trade shares on the other market.

This is not the well-intentioned but poorly promoted kind of link that the Asean Trading Link was. That drew anaemic trading volumes, amply reflecting the lack of demand and was decommissioned five years later in 2017.

This "Malaysia-Singapore Connect" may be worth the wait till the year-end as it promises not just trading, but also clearing and settlement connectivity that covers the "end-to-end value chain" and by extension, if the stock exchanges get their wish, more sizzle (read: more liquidity).

In short, it's quite the whole shebang short of a merger which is tougher to pull off given "national interest" considerations despite the countries' shared history and current chemistry.

It also marks the coming together of two almost natural trading environments, not least because of proximity and the significant presence of domestic brokers in each other's markets.

Singapore investors will get better exposure to Bursa Malaysia's offering of largely domestic companies, some of them big players in key sectors including government-linked stalwarts in the banking, telecommunications and plantations sectors.

In turn, Malaysian investors can expand their stock picks to not only Singapore's banking, real estate and oil and gas giants, but also foreign companies which make up some 40 per cent of the listings here.

They can of course already do that through a broker, but once this link is up and running, investors will essentially be able to trade equities of the other stock market and settle these trades in local currency as if they were trading in the domestic market, said a Malaysian Securities Commission spokesman.

The timing cannot come at a better time. Bilateral relations are at a peak, thanks in part to the strong ties between Singapore Prime Minister Lee Hsien Loong and his Malaysian counterpart Najib Razak.

Already, Singapore and Malaysia have pledged to build a high-speed rail to link their countries - a landmark project estimated to cost some S$17 billion and will be South-east Asia's largest infrastructure project and first high speed railway. This and a couple of other big real estate joint projects follow the resolution of a prickly railway land dispute between the countries.

Seen in this context, the stock market link would be another milestone in cooperation.

But there are potential risks or "political hazards" in Malaysia for Singapore investors: the country faces a high-stakes electionwith Mr Najib's ruling coalition facing a challenge from an opposition alliance led by former prime minister Mahathir Mohamad. It was during Dr Mahathir's leadership from 1981 to 2003 that relations between Singapore and Malaysia were most tense.

While political pundits expect the incumbent to retain power, investors in Malaysia equities would still be wise to consider the various possible outcomes.

It appears, too, that no single narrative on the two stock markets coming together can be told without resurrecting the "Clob saga". It has been nearly 20 years, but such was the trauma for Singapore investors that till today many still carry a phobia of Malaysian stocks. At the time, the Malaysian government, led by Dr Mahathir, moved to outlaw trading of its companies' shares offshore to keep money inside the country during the Asian financial crisis.

In so doing, it left in limbo shares worth over S$4.5 billion held by more than 170,000 investors - mostly Singaporeans. A resolution was eventually crafted to stagger the migration of the frozen shares and release them in the Malaysian market.

There is still be residual hurt. "Clob 2.0," remarked a trader sarcastically in an online investor forum. In truth though, the link-up this time is quite a different animal. Clob was an over-the-counter market with some 112 Malaysian counters and was never openly endorsed by the Malaysian government in its eight years of operations.

The latest plan bears the official stamp of both exchanges and regulators (and no doubt, governments) and promises a "superior trading experience".

Inadvertently, this "Malaysia-Singapore Connect" could mark a final closure of sorts for the Clob episode - a nice way to "make up".

But of greater consequence is that in the grander scheme of things, the success of the link could mark the beginning of an Asean power exchange.

READ MORE: Singapore-Malaysia stock link breaks new ground for Asean markets