Exchanges, once investors' darlings, lost between 50% and 70% of their market value in 2008 and their outlook is hardly better this year. Trading volumes are likely to dwindle in 2009, given that the financial crisis has claimed some key market participants.
But for those who want to bet on exchanges' stock prices falling further, analyst Edward Ditmire at New York investment bank Fox-Pitt Kelton Cochran Caronia Waller LLC has a word of caution.
“We think the time for shorting the group has largely passed,” Mr. Ditmire said in an interview, referring to investors' willingness to sell a stock they borrow on the view the stock price will decline.
Mr. Ditmire, who downgraded the trade execution sector to “market weight” from “overweight” on expectations of modest earnings growth in a Jan. 7 report, does not rule out a further drop in share prices. Instead, the rationale for his advice is based on the possibility of a takeover premium in the event of further sector consolidation.
“Sometimes dramatic M&A value creation potential or the interest in exchanges as strategic assets ... could create upside scenarios that would be painful to those that short,” Mr. Ditmire wrote in the report.
He did not rule out that better-than-expected volumes could lead to an “overweight” recommendation, but such upward revision is unlikely until the spring. — Isabelle Clary
