SINGAPORE - Investors in Singapore now have a new option to invest in companies listed in Hong Kong.
The Singapore Exchange (SGX) on Oct 30 announced that it is extending its Singapore Depository Receipt (SDR) coverage to include five Hong Kong-listed companies.
These are Chinese tech giants Alibaba.com and Tencent, Chinese electric carmaker BYD, Chinese state-owned Bank of China and HSBC.
While investors here can already trade Hong Kong-listed stocks directly through their brokers, Ms Serene Cai, head of securities trading at SGX Group, said the SDRs will give them the option to do so with smaller investment amounts.
“We are increasing accessibility and affordability for investors,” she said.
SDRs are financial instruments that represent ownership in a foreign stock or security, but which are listed on the SGX.
The concept is similar to American depository receipts of non-US companies listed on the US stock exchanges.
The five new Hong Kong SDRs will allow investors to gain exposure to one of China’s largest electric vehicle makers, companies involved in artificial intelligence (AI) and some of the country’s biggest banks.
Mr Alvin Chow, assistant director of investment advisory at financial advisory firm iFast Global Markets, said the Alibaba and Tencent SDRs will broaden the tech investment choices available on the SGX, given that there are fewer tech stocks on the local exchange compared with other major markets.
The two tech companies will also give local investors the opportunity to invest in the adoption of AI and gain exposure to other parts of the AI value chain, said Ms Cai.
She added that BYD will broaden the number of EV offerings on the SGX, where one of the few EV-related stocks is manufacturer Nio, which launched a secondary listing on the SGX on May 20, 2022. Another is Thai SDR Delta Electronics, which provides EV charger solutions.
Ms Cai said the Hong Kong SDRs are designed so that investors do not need to fork out high amounts of capital to invest in the underlying stock.
This is achieved by breaking down each Hong Kong share into SDR units.
Take BYD, which trades in Hong Kong at around HK$288 (S$50) per share, as an example.
Based on how its SDR issuance is structured, one BYD share in Hong Kong is equivalent to 10 BYD SDRs on the SGX. In other words, each BYD SDR would be worth $5, after the share is broken down into SDR units.
On the SGX, all stocks as well as SDRs are traded in board lots of 100 units.
By investing in the BYD SDRs, an investor’s capital outlay would amount to just $500, or $5 per SDR multiplied by 100 units.
In comparison, the investor who buys BYD on the Hong Kong stock exchange, where shares are traded in board lots of 500 units, will have to fork out around $25,000 for 500 shares at $50 each.
Similarly, the other four underlying Hong Kong stocks will be broken down into various units of SDRs, depending on their structure.
Ms Cai said investors and their brokers should take note of the ratios of SDRs to their underlying stock.
She added that SDR prices will be reflected on the SGX in single units so it is easier for investors to gauge how much they need to spend for a board lot of 100.
The Hong Kong SDRs are quoted in Singapore dollars so investors do not have to bear the foreign exchange risk of investing in Hong Kong dollars, Ms Cai added
The SDRs will be held in custody in an investor’s Central Depository account in Singapore.
In contrast, if the investor buys the Hong Kong-listed stock, his investments will be held in a custodian account with his brokerage. The broker holds the stocks on his behalf and while the investor can buy and sell stocks, the stocks are not held directly under his name.
Mr Chow noted that investors who are familiar with the SGX ecosystem can gain exposure to Hong Kong-listed stocks via SDRs without having to navigate another stock exchange.
Trading hours on the SGX are longer than on the Hong Kong stock exchange, so investors can capture market movements outside of the Hong Kong trading hours, he added.
Hong Kong stocks trade from 9.30am to noon and from 1pm to 4pm, while Singapore stocks trade from 9am to noon and from 1pm to 5pm.
The first SDRs in Singapore were linked to Thailand and launched on May 30, 2023 and April 1, 2024, enabling retail investors here to invest in Thai companies through the SGX.
There are now eight Thai SDRs listed on SGX with a daily trading value of $500,000 as at Sept 30, SGX said.
“The Thai SDRs have performed well. We want to use SDRs to expand our footprint. We now have Hong Kong and are working on some other countries as well,” Ms Cai added.
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