By Agency Reporter

Friday, 11 Feb 2011

The Hong Kong Stock Exchange, the world’s most valuable market operator, said it would consider international alliances after Deutsche Boerse and NYSE Euronext announced plans to form a global trading powerhouse.

Reuters reported on Thursday that Deutsche and NYSE said they were in advanced talks to form a marketplace that would have annual trading volume exceeding $20tn, the latest in a flurry of mergers pointing to a shake-up of an industry under intense cost pressure from upstart electronic rivals.

“Due to changes in the financial market landscape, HKEx will consider international opportunities for alliances, partnerships and other relationships that present strategically compelling benefits consistent with its focus on markets in China,” Hong Kong Exchanges and Clearing Limited said on Thursday.

It had not identified any opportunities, it added.

News Deutsche Boerse could be close to buying NYSE Euronext came shortly after the London Stock Exchange announced a bid for Canada’s TMX.

The merger activity spurred a near five per cent rally in shares of Australia’s ASX, which is trying to overcome domestic opposition to a $7.9bn takeover bid from the Singapore Exchange.

In contrast, HKEx shares slumped on worries that a round of mergers would intensify competition for the exchange, whose markets generate $1.5tn in trading volume.

The shares closed down 4.9 per cent, the most since May 2009, on the highest trading volume since late 2008, Reuters data shows.

HKEx, which has a market capitalisation of around $24.4bn, has so far felt no need to merge. Its position as a gateway to China for international investors and its strong pipeline of China-backed IPOs has kept business booming.

Other exchanges in Asia have been reluctant to seek tie ups due to tight ownership, while regulations in some markets, such as India and China, prevent significant foreign involvement.

“The competitive threat from alternative trading pools makes strategic sense for traditional exchanges to combine resources so they can compete better,” said Mr. Neo Chiu Yen, Vice-President for equity research at ABN AMRO Private Bank.

The Tokyo Stock Exchange indicated no interest in seeking a merger. SGX’s bid for ASX faces major political and regulatory hurdles in Australia, but the Singapore exchange said the merger talks announced in recent days supported its case.

“The latest developments underscore the rationale for exchange consolidation and the merits of an enlarged group,” Chief Executive Officer, Mr. Magnus Bocker, said in a statement.

In fact, the flurry of merger activity might help boost support for the Singapore-Australia tie up, said Ms. Magdalene Choong, an analyst at Phillip Securities “Having seen so many mergers in the global market recently, Australia may better accept the prospect of being part of a larger group and it has paved the way for Australians to accept the reality of today’s world,” Choong, who has a “buy” rating on SGX, said.

Shares in both firms outperformed their respective wider markets. ASX shares rose 4.7 per cent, while SGX was flat. The takeover talks revive a wave of international exchange mergers last seen in 2006 and 2007.

 

Source: Punch