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Forex Flash: Buy Deutsche Börse and ICAP despite FTT – Merrill Lynch

FXstreet.com (Barcelona) - Merrill Lynch analysts believe that the proposed European Financial Transactions Tax (“FTT”) is likely to undermine economic growth and investment returns due to the counterproductive implications of the tax going ahead in its current. “Our view is that the FTT may look like a simple toll on financial transactions. However, its structural features, which are very different from existing transaction taxes, make it a significant potential roadblock for the economies of the eleven participant nations”, they wrote, adding that if their view of the FTT is proved wrong, “all the volume sensitive stocks we cover could see very material hits to earnings”.

“ICAP derives around 40% of its earnings from European operations and most of this is volume related. The European exchanges are clearly more geographically focused on Europe, although they have in general larger non volume related businesses”, they continued, expecting these to be impacted by the sharply reduced trading volumes which the FTT could prompt.

“Given our estimates of probabilities, we have changed neither estimates nor recommendations for these stocks. We rate Deutsche Börse and ICAP as Buys, as they offer attractive valuations and an exposure to what we see as cyclically recovering trading volumes”, they forecast, also rating LSEG as Neutral, “as valuation is not outstanding although the company has done well to reposition itself away from volume-related business”, and rating BME as an Underperform, “as we are worried that, even absent FTT, its trading revenues will come under pressure as its market share shrinks”.

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