Mergers focus the spotlight on Asian bourses

SYDNEY/SINGAPORE - A wave of global stock exchange consolidation has thrown the spotlight on Asia's bourses.

The trend in exchange mergers has sparked a rally in shares on Australia's ASX, which is trying to convince politicians to support a $7.9 billion takeover bid from the Singapore Exchange (SGX).

Meanwhile, Deutsche Boerse's announcement that it is in advanced talks to buy NYSE Euronext to create the world's biggest trading powerhouse is a wake-up call for Asian bourses, which face increasing competition in equity trading from new platforms.

That news came just hours after the London Stock Exchange (LSE) announced a bid for Canada's TMX.

The latest consolidation is putting pressure on Southeast Asian exchanges, which have avoided mergers because of tight ownership and political obstacles, although these bourses are taking steps to promote cross-border trading.

"The competitive threat from the alternative trading pools means it makes strategic sense for traditional exchanges to combine resources so they can compete better," said Neo Chiu Yen, vice-president of equity research at ABN AMRO Private Bank in Asia.

SGX's $7.9 billion bid for ASX faces major political and regulatory hurdles in Australia, but investors said the latest deals appeared to strengthen the case for a partnership.

"That whole game's moving very fast now. Maybe it gives the ASX-Singapore Exchange (deal) a bit of a kick along," said John Sevior, head of equities at Perpetual Investments, the biggest shareholder in ASX.

"It just depends on how broad the government's horizons are. At the moment, it's mired very much in domestic political issues."

Sources close to the deal said there had been informal dialogue in recent weeks between SGX and ASX, Australian politicians and the country's Foreign Investment Review Board (FIRB), which has the power to block any deal. However, SGX had not yet formally submitted its application to the FIRB.

ASX said the two foreign deals highlighted its argument that consolidation was necessary.

"The developments overseas do underline the global trend towards exchange consolidation in response to the dynamic changes that are shaping the market," an ASX spokesman said.

However, the leader of Australia's powerful Green party reaffirmed his strong opposition to the ASX-SGX deal.

"If I was in New York I would be advocating that the (US) stock exchange remained in American hands," said Green leader Bob Brown. While many analysts said the deals should bolster the case for a merger of SGX and ASX, one analyst said the LSE could now be seen as an alternative partner for ASX.

"The LSE is clearly making a play on the mining-resources side of things and Asia is in general very resource-hungry, so if Australia wasn't a potential target for SGX, which isn't a done deal yet, that would be one option," said Niki Beattie, managing director of the trading consultancy Market Structure Partners.

Many smaller Asian exchanges were not yet feeling the pressure from alternative equity trading, although Hong Kong and Malaysia's bourses could be candidates for deals, analysts said.

"Looking at the other stock exchanges, it is a bit too early to say that we are going to see a wave of consolidation in Asia, unless those markets open up, show aggression in terms of attracting listings beyond their domestic companies and liberalize the exchanges a lot more in terms of ownership," said Harsha Basnayake, head of Transaction Advisory Services in Southeast Asia for Ernst & Young.

"Certainly the HK exchange is there and then there is Bursa Malaysia as potential candidates," Basnayake added.

Reuters