As Yet Another Exchange Goes Global, Investors Should, Too

Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

The Nasdaq Stock Market Inc. (NDAQ) is the latest of the world's major stock exchanges to become part of the trend toward worldwide consolidation.

It's a trend that we advised you to watch, and that we've been following quite closely.

But unlike some of its trading brethren, the NASDAQ didn't link up with Europe.

Instead, the exchange that's known as the host of some of the market's biggest high-tech names and most futuristic players remained true to that reputation by partnering with China's Shenzhen Stock Exchange - creating an entirely new stock market with the express purpose of listing small- and medium-sized companies.

While the timing is unclear with regard to when the new exchange will become operational, each player's ultimate objective is crystal clear:

  • Shenzhen wants market share in the increasingly competitive Chinese trading environment and will benefit from NASDAQ's experience with rising-star companies.
  • And the NASDAQ hopes to list those same companies in the future.

And that's really the story here.

In concert with the huge-and-growing "global big bang" we're now following, the world's transactional leaders have set in motion a wave of consolidation deals that are unprecedented in focus and that will provide great profit opportunities for investors.

Let's first look at just how unprecedented these deals really are.

For hundreds of years, the world's financial exchanges have been separated both by geography and by product type. In a geocentric economy, that really wasn't a hindrance as investors tended to "hunt at home" for profit opportunities.

With globalization, however, appetites are changing. Consumers no longer really care where a product is made: They just want the most-advanced features and highest quality at the lowest-possible price. Investors are no different. They want the biggest potential profit opportunities, and don't want to be constrained by legislative or regulatory ignorance any more than they want to be limited by what in the financial arena can only be described as artificial geographic boundaries. Enlightened investors want to capitalize on the best the world's capital markets have to offer. Global stock exchanges understand this, which is why they are taking steps now, in anticipation of the ongoing removal of any remaining barriers to global investing.

While we didn't actually see a huge number of transactions to this effect in 2007, we did see the biggest players "get busy." The first and largest of the deals was the $14 billion NYSE EuroNext.Liffe (NYX) tie up which created the world's first truly transatlantic, multiple asset class exchange [Euronext.Liffe, itself, was formed from the takeover of the London International Financial Futures and Options Exchange by Euronext back in January 2002]. Not to be left out, the Chicago Mercantile Exchange and the Chicago Board Of Trade closed a $12 billion deal while blocking out the Intercontinental. Exchange Inc. (ICE) in a hotly contested linkup. The CME Group Inc. (CME) is now the world's largest derivatives exchange.

ICE, however, didn't lose out and, in turn, bought several exchanges, including the January 2007 buyout of the Board of Trade of the City of New York Inc. (NYBOT) and another deal that extended its capabilities into Canada. Then there's the so-called "Middle East Cash Barons," state-run investment pools operated by such governments as Dubai and Qatar, which have been busy aggregating their existing financial-market holdings while also acquiring new ones in Europe - all with the intent of enhancing Middle Eastern markets and boosting investment liquidity.

Next up, naturally, is Asia and that's logical because of the growing cache of cash [China had $1.33 trillion in foreign reserves as of this past summer] and soaring trading volumes on Far East stock exchanges. We've already seen NYSE EuroNext establish partnerships with the Tokyo Stock Exchange and an ownership interest in the National Stock Market of India Ltd. At the same time, the CME has moved into China and Taiwan and is said to be interested in India, too.

And that brings us full circle with regard to what's in it for investors like us.

In a word: Opportunity.

Not only will we have more investment choices available to us on a single screen, but because of the consolidation taking place, transaction costs will likely decrease even more than they already have in recent years - even as the efficiency with which we can trade in global markets increases.

And that suggests that the exchanges themselves will be increasingly viable investments. Choices include the NYSE EuroNext, NASDAQ, and CME, at the moment.

However, we can also look to the Middle East and to China when ownership in those exchanges becomes an option - a pun that I absolutely intended.

But believe me when I say that the profit opportunities to come will be no joke - even if the profits you reap send you laughing all the way to the bank.

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About the Author

Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

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