Last Tuesday I told you about my boldest prediction in international financial tectonics yet–that Persian Gulf countries and their sovereign wealth funds would soon change the face of Wall Street. Late last week, those tremors turned into a full-scale earthquake.
This summer, the government of Dubai and its investment arm established Borse Dubai, a state-run operator purpose-built for the emirate’s stock exchange and, almost immediately after the company’s debut, for the expansion of Dubai assets into international equity markets.
The first target of Borse Dubai was the Stockholm-based OMX family of exchanges. OMX, which digitally connects markets across Scandinavia and the Baltic States, is a digital trading floor itself and also markets sophisticated trading technology to the rest of the world.
Many of the innovations that have allowed Wall Street’s Nasdaq and other floor-free trading floors of the digital age to add speed and security to transactions have come from OMX’s proprietary technology.
I’m long on transaction technology, with a few holdings in my Orbus Investor portfolio proving the essential international nature of moving money electronically. All three are gainers, and I expect profits to snowball as cash fades into the background for payments on Wall Street and Main Street alike.
Dubai knows the Nordic know-how is key for the world’s financial future, so they made an offer to buy a controlling stake in OMX this summer. Now, after a regulatory challenge in Sweden, the international stock exchange scene looks more like the NFL draft.
Borse Dubai is positioned to buy a majority stake in OMX and then sell it to the Nasdaq, which had also targeted OMX as part of its plan to gain international stock exchange exposure after the NYSE locked up a deal with European exchange Euronext.
Like drafting a runningback and trading him right after he smiles and holds up the jersey with his name on it, OMX is likely to get a case of whiplash from this whole affair. They won’t be the only ones with a crick in their necks, though, as the London Stock Exchange, Europe’s most prominent bourse, is part of all this swapping as well.
Nasdaq is set to sell Borse Dubai a 28% share of the London Stock Exchange in what is effectively a swap that will leave Nasdaq with a 1/3 stake in the DIFX (Dubai’s home exchange).
Since Nasdaq had originally targeted the OMX for takeover, before Borse Dubai stepped in with a bid they must have known would be abortive in the end, Nasdaq got the draft pick they wanted, as well as tapping the potential of a newcomer with deep pockets through their partnership with Borse Dubai.
Confused? Hold your horses, there’s more.
Qatar, one of Dubai’s neighbors in the six-nation Gulf Cooperation Council (Dubai is lumped in with the rest of the United Arab Emirates), is now working to horn in on the Trans-Atlantic action.
The Qatar Investment Authority is run by Sheikh Hamad bin Jassim Al Thani, who is also the country’s prime minister. As you may have guessed, he is a member of the country’s royal family.
From the country’s more familiar turf of energy investment (the country is the world’s top liquefied natural gas, or LNG, exporter), the QIA has branched out in recent years to real estate holdings across the world, and now its eyes are focused squarely on rivaling Dubai for the title of regional investment capital.
You have probably heard of Al Jazeera, the Arabic-language satellite TV network based in Doha, Qatar’s capital city. That network has helped promote the country’s status throughout the Arab world as a bastion of relative freedom of the press. Despite many Americans’ negative opinion of the network, Qatar played an important role as a regional base for combat operations and logistical support at the outset of Operation Iraqi Freedom in 2003.
Now, the QIA, which is a newborn on the international financial scene just like Borse Dubai, is racing westward with its wallet in hand.
Last Thursday, the Qatar Investment Authority purchased almost 20% of the London Stock Exchange, through a purchase of the LSE shares that trade on the exchange itself. The QIA also bought 10% of the OMX, the Financial Times reported Friday, meaning that the Persian Gulf monarchies are now digging in for a battle for assets across northern Europe.
So about half of the London Stock Exchange is now in the hands of Persian Gulf investors, and the tie-up between Nasdaq and Borse Dubai is already starting to ruffle political feathers across the pond.
Senator Chuck Schumer of New York is already on record, saying, "This deal raises serious questions…should we allow foreign governments to take over our financial exchanges and how much control and influence should those foreign governments have?"
President Bush has also chimed in, saying that direct investment in Nasdaq by Dubai’s government corporations would force a national security review.
As we are seeing time and time again in international business that involves government-run enterprises, free markets ain’t exactly free.
Neither is innovation, and OMX technology is key for parties like Dubai and Qatar to become regional trading hubs, and not just for pearls and camels like their ancestors were known for transacting.
Fully seven Middle Eastern exchanges use OMX technology, the Wall Street Journal reports, and with a Tuesday deal between OMX Group and Colombia’s Bogota exchange, the hungry Gulf investors have another notch in their belt of international exposure if they buy OMX, cementing a Gulf presence in one of South America’s most important growth markets.
Oh, and this just in…Dubai’s neighbors in the emirate of Abu Dhabi just made a $5 billion bid for one of Canada’s largest energy trusts. I’ll have more on that in tomorrow’s edition of Energy and Capital .
I’ve been to the OMX in Riga, Latvia, and soon I’ll be on my way to the Gulf to talk to regional businessmen myself. Lock in on the latest with me, and I’ll guide you to profit from all the consolidation we’re seeing.