Not surprisingly, the short-term performance of ASX Ltd (ASX: ASX) – the owner of the Australian Securities Exchange – can often be viewed as a proxy for the wider market.
The 2014 calendar year has certainly been no exception with the ASX Ltd's share price set to finish the year down nearly 5% which will most likely be a percentage point or two more than the fall in the S&P/ASX 300 (Index: ^AXKO) (ASX: XKO).
While the outlook for both the domestic and global economies and the stock market in 2015 remains somewhat clouded, there is one big reason why 2015 could be a great year for the ASX Ltd…
Last week saw the release of David Murray's Financial System Inquiry and the report called for the removal of the 15% foreign ownership cap on ASX Ltd.
While there is no guarantee the government will follow through on the report's recommendation, it does open the door to that possibility which in turn would open the door to potential merger and acquisition (M&A) activity involving the exchange.
Should the proposal ultimately get implemented it will no doubt re-spark talk of whether a merger with the Singapore Exchange will be revisited.
Valuation
The stock is trading on a financial year (FY) 2015 price-to-earnings (PE) ratio of 17.3x according to data provided by Morningstar Australia; looking out to FY 2016 the PE drops to 16.5x.
When you consider the potential for M&A activity, coupled with the ASX Ltd's strong industry position and competitive advantage those multiples look appealing compared with the broad S&P/ASX 300 which is trading on a forecast FY 2015 and FY 2016 PE multiple of 16.5x and 15.9x respectively.
What's more the ASX offers a forecast dividend yield of 5.2% in FY 2015, which is above the expected market average yield.
