Have the Exchange Stocks Bottomed?

By Roger Nusbaum | August 04, 2008 | 12:14 PM | 4 Comments

This morning the WSJ has a recap of the earnings report for Intercontinental Exchange (NYSE: ICE). Earnings jumped 58% based in more volume. Obviously where exchanges are concerned more volume means more revenue and probably more earnings.

I have had a theory, that I doubt is unique, about publicly traded exchanges for a while that they are proxies for both the markets and economies for their home countries.

Most of the publicly traded exchanges around the world that I know of are down more than their respective home markets and I believe there is visibility for them to turn up earlier than the broad markets do. The idea behind this thought is that if markets are a leading indicator of the economy then volume would start to pick up before most stocks rally.

One example of this could be in Australia.

The chart compares the ASX 200 and the Australian Stock Exchange (OTCPK: ASXFF).

In the last few days there has been much concern about the problems in Australia being worse than in the US. If that ends up being true, fine, but the market will bottom before the economic reality and in theory the exchange may bottom before then.

I'm not the one who is likely to correctly call a bottom but buying a stock that is down a lot and that is not going to go out of business (and obviously one you have researched thoroughly and drawn a favorable conlcusion on) is not the single dumbest thing you will ever do. To be clear I am not a buyer if ASXFF, this is just an example.

The catalyst for this post was a recent reader comment on my blog that reminded me of the importance of this segment. In addition to the proxy aspect I believe that publicly traded exchanges are also a part of the infrastructure theme, the financial infrastructure. Unfortunately there is no pure play ETF available. The closest might be the Claymore ETF (NYSE: EXB) which is roughly 30% in global exchanges.