The Hong Kong stock exchange, the world’s biggest by market value, said it would consider international alliances after Deutsche Boerse and NYSE Euronext announced plans to form a global trading powerhouse.
Deutsche and NYSE said they are in advanced talks to form a marketplace that would have annual trading volume exceeding US$20 trillion, 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 Ltd said yesterday.
News that 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 5 percent rally in shares of Australia’s ASX , which is trying to overcome domestic opposition to a US$7.9 billion takeover bid from the Singapore Exchange.
In contrast, HKEx shares slumped on worries a round of mergers would intensify competition for the exchange, whose markets generate US$1.5 trillion in trading volume. The shares closed down 4.9 percent, the most since May 2009, on the highest trading volume since late 2008, Reuters data showed.
HKEx, which has a market capitalization of about US$24.4 billion, 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 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 Magnus Bocker said in a statement.
In fact, the flurry of merger activity might help boost support for the Singapore-Australia tie up, said 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’s paved the way for Australians to accept the reality of today’s world,” Choong, who has a “buy” rating on SGX, said.
The takeover talks revive a wave of international exchange mergers last seen in 2006 and 2007.
In Asia, exchanges in Southeast Asia have already said they want to set up trading links between their markets and aim to have cross-border dealing in their listed shares by the end of this year.
Yesterday, Bursa Malaysia Bhd, operator of the Malaysia stock exchange, said it was open to exploring collaboration.
The Philippines Stock Exchange said it was watching global developments.