Investing in Japanese Listings on the SGX

While many investors on the Singapore Exchange (SGX) invest with a focus on Singapore based companies there are also foreign listings on the SGX. One country that the SGX has put effort into attracting listings from is Japan. This can provide domestic investors in Singapore with a good opportunity to invest in the Japanese market place without using a different exchange than the one they are likely most familiar with.  

While the number of Japanese listings on the SGX is relatively small, it has shown signs of growth in recent years. Japanese bond offerings on the SGX began as recently as 2013 to be the largest country source of bond issuances on the SGX in absolute terms, exceeding issuances from Singapore based companies as well as Korea based ones.

In addition to significant growth in the bond market, Japanese listings on the SGX have also provided some notable events recently. This includes the Accordia Golf Trust (SGX:ADQU) which was the largest issuance on the SGX in 2014, and Xyec Holdings Co. (SGX:5WR) being the first Japanese company to debut only on the SGX’s Catalyst board in 2013, with no listing on a Japan based exchange. These listings demonstrate the unique role of the SGX in attracting Japanese listings and the importance of those listings to the exchange itself.

While Xyec Holdings listed on the Catalyst board for smaller businesses there are significant Japanese companies on the SGX main board, including:

• Nomura Holdings Inc. (SGX:N33)

• Murata Manufacturing Co. (SGX:M20)

• Isetan Ltd. (SGX:I15)

• Giken Sakata S Ltd (SGX:542)

While their SGX based offerings are limited in terms of the total value (with larger listings on Japanese exchanges), they are an important bridge between the countries in terms of investment opportunities.

Cross listings between the two countries’ markets and offerings by Japanese companies on the SGX can only be expected to grow in the future. The SGX and Japan’s Tokyo Commodity Exchange (Tocom) have recently announced a partnership to jointly develop Asian’s liquefied natural gas (LNG) market as well as develop further the listing of electricity futures.  

The SGX was the first exchange in Asia to trade in electricity futures (in 2015), and partnering with a Japanese based exchange should increase access to Japanese investors interested in investing in these commodity investment vehicles. Close participation between the SGX and Tocom in the energy market could also provide an opportunity to Singapore based investors, if it can draw additional energy company listings, from Japan and elsewhere.  

 

Risks of Investing in Japanese Listings

Source: Pixabay

While the opportunity to invest in Japanese listings on the SGX exists, it does come with some risks. One consideration for many investors is that these companies come with more exposure to the Japanese domestic economy which has not seen significant growth in recent years. An investor may want to therefore focus on Japanese listings whose operations are more heavily reliant on markets other than the Japanese-domestic ones.  

An additional risk to consider is the exchange rate risk. These companies typically earn a significant amount of their revenues in Yen and any dividends paid out on the SGX will be based in Singaporean dollars. Fluctuations in the exchange rate between the Yen and the Singaporean dollar can impact the companies’ ability to pay Singaporean dollar denominated dividends, cutting into returns on the investment.

 

Benefits of investing in Japanese Listings

A key benefit to investing in Japanese listings is the relative stability and maturity of the Japanese economy and regulatory environments. Compared to most foreign listings on the SGX those from Japan are likely the most stable and low risk when it comes to exposure to fraudulent reporting or market swings.  

Additionally, some of the Japanese listings on the SGX are very broad in terms of the geographical markets that they operate in. Through investing in these companies, an investor has the opportunity to diversify their portfolio not only through the Japanese economy but also to the other regions the company operates in. This geographical diversification of an investors’ portfolio can be very effective to reducing the overall risk of the portfolio.

(By Jeffrey Glen)

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