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Battle for China A50: HKEX competes on price; for SGX lots at stake

HKEX’s launch of MSCI China A50 Connect Futures on 18 Oct will end SGX’s monopoly in offshore China A derivatives. Advantages of the HKEX contract: 1) Attractive pricing: HKEX’s headline pricing for A50 is roughly half of SGX’s effective rate per notional. HKEX will offer fee waiver; 2) Well-balanced sector composition, hence lower tracking error to MSCI China A vs. financial-heavy FTSE A50; 3) Home advantage, with investors trading A-share underlying through Connect. SGX’s strengths: 1) Better liquidity: SGX could compete on implicit trading costs, e.g. tighter bid-ask spreads; 2) Round-the-clock trading: SGX derivatives are closed only on New Year Day and have longer trading hours; 3) Established offshore derivatives ecosystem, with high-margin efficiency. We see limited earnings accretion for HKEX in the near term, and greater earnings downside risk for SGX. Longer term, HKEX looks better positioned than SGX in A-share derivatives.

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Singapore REITs – Travel Takes Flight at Expense of Retail

The government’s latest moves to extend VTL (coupled with fewer PCR tests) represents another baby step to reopen international borders, which should improve tourist arrivals (albeit partially) and support tourist spending in downtown malls, though SHN business is likely to taper off with extended HRP. Singaporeans’ passion for travelling could partially reduce domestic retail spending in 4Q, which has traditionally been retailers’ stronger quarter. The expanded VDS and yet-to-peak present wave of infection also suggest to us existing retail-related restrictions may not necessarily be lifted in the near term as Stabilization Phase ends, which could hamper retail S-REITs’ ability to generate positive reversions. We expect knee-jerk negative/positive reactions on retail/hospitality S-REITs.

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Airports of Thailand (AOT.BK) – Thailand, countrywide, is incrementally ceasing quarantine from Nov 1

According to Bloomberg, Thailand will lift the mandatory quarantine for fully vaccinated international travelers arriving by air from at least 10 countries including US, UK, Germany (reciprocal no quarantine), Singapore and China (unilateral) from November 1. The list will expand from December 1 and further from January 1. Travelers require two negative RT-PCR tests from pre-departure and on arrival. The gov’t maintains its original commitment from June to drop quarantine within 120 days and will not impose a quota (e.g. Singapore’s 3,000 starting daily arrival quotas under VTL). Empirical evidence of international tourism recovery among key leisure countries without quarantine has been strong (e.g. Mexico and Turkey where the airport proxies’ share prices are returning to or already exceed pre-pandemic levels). We reiterate our Buy rating on AOT with a Bt78 TP. The share price will likely react positively and int’l traffic