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The ASX is being pickpocketed

The ASX is one of the larger stock exchanges of the world, but it’s important to remember that it’s the sum of its constituents.

The big four banks such as Commonwealth Bank of Australia (ASX: CBA) and miners like BHP Billiton Limited (ASX: BHP) play a big part of the index, but the smaller businesses also play a part.

There has been a recent bout of takeovers announced by overseas entities which will acquire ASX-listed businesses.

Some of the most notable takeovers are that Westfield Corp Ltd (ASX: WFD) is being taken over by Unibail-Rodamco, Mantra Group Ltd (ASX: MTR) is being taken over by AccorHotels, Aconex Ltd (ASX: ACX) is being taken over by Oracle and TRILOGYINT FPO NZX (ASX: TIL) has an offer from CITIC Capital.

These acquisitions are nice for shareholders of those businesses, they get a big pay out for their shares and can then do whatever they like with the cash.

However, I don’t think it’s good news for the ASX, particularly over the long-term. These businesses are important to the ASX, they offer diversification and potential growth. Whereas now it will be a foreign entity that reaps the benefits of the infrastructure boom instead of shareholders of Aconex and the other businesses that are getting taken over.

Investors who have their money in ASX index products will be worse off over the long-term without the growth that could have been generated.

The weakening Australian dollar and relatively small stock exchange means that ASX businesses look like tasty acquisition targets for overseas predators.

Foolish takeaway

Shareholders who are lucky enough to have had a takeover offer would be wise to re-invest the cash back into more shares. Index funds like Vanguard MSCI Index International Shares ETF (ASX: VGS) and BETANASDAQ ETF UNITS (ASX: NDQ) or a top quality share like Ramsay Health Care Limited (ASX: RHC) would be good choices.

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Motley Fool contributor Tristan Harrison owns shares of Ramsay Health Care Limited and TRILOGYINT FPO NZX. The Motley Fool Australia owns shares of and has recommended ACONEX FPO, TRILOGYINT FPO NZX and BETANASDAQ ETF UNITS. The Motley Fool Australia has recommended Ramsay Health Care Limited, TRILOGYINT FPO NZX, Vanguard MSCI Index International Shares ETF, and Westfield. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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