Take U.S. Mania for Exchanges Abroad

There was a lot of excitement about exchanges coming public in 2005, with no fewer than three exchanges taking the plunge. Lately, most of the excitement has been about consolidation, cross border and otherwise, and I believe bids for the London Stock Exchange could be the start of more cross-border consolidation that involves U.S. exchanges.

Despite the recent wave of public exchanges, the U.S. is late to the party with this type of listing. Last year the following exchanges came public:

CBOT Holdings (BOT - commentary - Cramer's Take)

,

International Securities Exchange (ISE - commentary - Cramer's Take)

and

Intercontinental Exchange (ICE - commentary - Cramer's Take)

.

More recently, the NYSE (NYX - commentary - Cramer's Take) used Archipelago as a vehicle to go public. And Macquarie Bank in Australia and the Nasdaq Stock Market (NDAQ - commentary - Cramer's Take) have both bid for the London Stock Exchange. So it's clear investor appetite for exchanges remains healthy. But the next movers might well be overseas.

Down Under Exchange

The Australian Stock Exchange, for example, first went public in 1998. That a bigger exchange elsewhere might want to consolidate with the ASX seems plausible, but not obvious. Macquarie's interest in buying the LSE perhaps speaks to Australia's wish to join the rest of the world.

The ASX has been a sort of stand-alone entity down under, yet it has a good track record for innovative investment products, price appreciation, earnings growth and dividend growth. Year-over-year growth in revenue, earnings and dividends in 2005 were 16%, 29% and 86%, respectively. Estimates for 2006 look for a slowdown to 5% growth. Products available on the ASX include options, warrants, specialized equity and bond funds and a buy-write index.

The play on Australia is the extent to which the country becomes more important in the global economy. A signficant factor for whether this happens depends on the smaller natural-resources shares becoming more important globally as China continues to demand more resources. The Australian dollar becoming a more important currency (perhaps at the U.S. dollar's expense), along with moderate economic growth continuing (Australia has not had an economic recession since 1991), also could help lift ASX's shares further.

ASX is set up and available to trade at major brokerages, such as Schwab, often through the global desks, but the transaction is likely to carry a higher commission than trades placed online.

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Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, Ariz., and the author of Random Roger's Big Picture Blog. At the time of publication, Nusbaum had no positions in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.