What is the ASX up to?

The stock exchange company's rights issue is no bonus, but investors might profit nicely from whatever the ASX has up its sleeve.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Australia's stock exchange owner and operator ASX (ASX: ASX) seems to be up to something more than its stated objective with its surprise $553 million renounceable rights issue. Just what that is has become the source of much speculation among analysts and the media, and it's going to be very interesting to eventually find out.

Certainly current shareholders have not been that well served with the rights move so far. When the stock resumed trading a week ago it fell 6.1% — and that came on top of  a 2.3% decline the day before. Its chart has looked exceedingly ugly since a few weeks ago when it seemed to be closing in on its 52-week high near $40. But interestingly, it fared better than most when our market was battered at the end of the week.

What could happen further down the track though is tantalising. Investors are hanging in. The 2 for 19 rights to $30 shares are being thinly traded at a rather poor price. With the market tanking after Wall Street and the stock trading under $33 Friday, the buyers are starting to come out.

It's not so much what the ASX will do with the money raised that is in question. It has said all but about $100 million will be used to retire debt and meet the expected increased costs of new capital standards for international clearing. It is positioning itself with such a healthy balance sheet that's leading to the speculation. And the most obvious guess from analysts and commentators is that the ASX will revisit its proposal to merge or acquire offshore. That prospect becomes shorter odds with a change of government in September.

It was in April 2011 that Treasurer Wayne Swan finally rejected the ASX's proposal to "merge' with the smaller capitalised Singapore Stock Exchange (SGX), saying it was not in the national interest. Shadow Treasurer Joe Hockey criticised the assessment process but did not actually indicate the Coalition's policy on the proposal. It, or something similar, could be in the cards again.

There have been successful exchange mergers elsewhere and the Australian Stock Exchange could probably now argue a better case for no loss of regulatory authority. However, revisiting a Singapore Exchange merger per se may not be the actual game plan. With global markets and their products becoming more complicated, there are more opportunities for synergies between businesses now, even after just a couple of years, than straight-out mergers or, in what was more likely the SGX-ASX case, takeovers.

The ASX itself has hinted as such a couple of times. Here are two examples:

A few months after his April 2011 appointment as ASX chief executive officer, Elmer Funke Kupper said in the Listed @ ASX newsletter it was one of his priorities to "better link ASX to global capital markets over time. Collaboration with other exchanges may also help to improve liquidity, reduce costs and broaden the products available to our customers."

And in a talk on the future of Australia's capital markets published as a video by The Australian Financial Review on May 30, Kupper stressed how much ASX could learn from Singapore, praising its stock exchange for the consistency it managed between stakeholders.

Kupper made no mention of any corporate moves, of course, but he made a point about the opportunities of looking over the horizon:

"If you look at Singapore, for example, what you have to admire is the consistency between the government, the regulators, the exchange, the banks, the brokers, the investment community, the tax office and everybody else in determining what's important and they develop a 10-20 year vision for their markets… (They are) sort of very externally focused … and I think we still sometimes spend, you know, too much time with ourselves. I think that's changing …"

The take-home message from that is anyone's guess, except that we can expect some major changes. With the ASX's price currently under so much pressure, there's a lot of upside in there for a company with a good plan.

Foolish takeaway

The ASX has something up its sleeve other than a lot of cash. Current shareholders have little choice at the moment but to go along for the ride. Those with faith in the future of our bourse and overall economy should consider getting on board if they can get what looks like a cheap ticket.

If you're looking for a solid investment idea, click here now to get The Motley Fool's special FREE report, "3 Stocks For the Great Dividend Boom". The report lists the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool contributor Andrew Ballard does not own shares in any company mentioned. 

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »