This from Taipan Publishing’s Emerging Markets blog:

Consolidation comes in many forms… Buying up assets or operations, buying stakes in operations or companies, merging operations, takeovers, the list goes on and on. But one thing that has started gaining interest in the mainstream media is exchange consolidation.

Remember last summer when the Chicago Merchantile Exchange bought the Chicago Board of Trade? Or when the Group decided to by Nymex the following March for $11 billion? Or when NYSE Euronext bid for AMEX? When Nasdaq wanted to buy London and the OMX?

These merging markets offer considerable cost savings, a uniform platform, and an ease of cross-transactions that could ultimately create a “flat world” of international trading.

This behavior is starting to trickle into emerging markets as regional stock exchanges gain market capitalization and foreign interest. For example, Wiener Börse, operator of the Vienna stock market, just announced that it would buy the majority stake in the Prague Stock Exchange.

The deal is worth about $264 million, and Wiener Börse beat out other regional rivals, like Deutsche Boerse and the OMX Nordic Exchange. The Warsaw Exchange, Wiener Börse’s main competitor, was kept out of the bidding process because it’s a state-owned business.

But this isn’t the first market Vienna’s gotten its paws on…

Back in May 2004, it bought 68.8% of Hugary’s Budapest Exchange. Then a whole network of exchanges emerged. “Wiener Börse boasts partnerships with eight exchanges in Southeast Europe (Bucharest, Zagreb, Belgrade, Sofia, Sarajevo, Montenegro, Banja Luka and Macedonia),” says the Web site.

The Warsaw exchange has signed co-operation agreements with the National Stock Exchange of Lithuania and cross-access agreements with London and Euronext.

Of course, some people will contend that this is a form of monopoly in the making… That no good can come from a few powerful holders of so many international markets. And they have a good point. But the difference may just be that these co-operative markets will allow money to flow all over the world more easily at a much faster rate.

Are there downsides? Of course.

When I spoke to one of Vietnam’s sharpest fund managers back in April, he spoke about the ease of moving money around. He said, “Think about it. If money can flow into a market very easily, it can flow back out just as easily.”

So it’s a two way street. That’s a given…

But for new markets just entering the world stage, the pros outweigh the cons.

We’ll probably see more of these merging markets. As international investors, you should be seeing easier ways to invest across different exchanges.

Source: Merging Markets: The Buy-Up of Bourses

“Chimerica stocks are Chinese companies,” says Tom. “They do business in China, with Chinese management, Chinese employees, and Chinese currency. They make products for Chinese consumers.

The key is that these Chinese companies list on US stock exchanges.

Chimerica stocks list in the US because they can’t list in China or Hong Kong. “Going public” in China takes about three years. But in America, it only takes about six months. According to Barron’s, “Even now, for every company that goes public [in China] there are probably a hundred in the queue, and a lot of companies want money sooner rather than later.”

How does this happen?

A shell company is a stock without a business. The business has no assets or operations, but it still has a name and a stock symbol. To list in America, Chinese companies find an American shell company and back themselves in. Lawyers call this a “reverse merger.”

Why are Chimerica stocks good for investors?

According to Barron’s, they sell for an average 10 times earnings. The price-to-earnings ratio of the Shanghai Composite – China’s main stock exchange – is 27. Chimerica stocks are cheap because Chinese investors cannot open brokerage accounts in the United States to buy these stocks. American investors don’t know about them. Analysts don’t cover them.

Tom has put together a list of these stocks, which can be found here: Tom Dyson’s list of Chimerica stocks.