Andean Nations Overtaking Mexican Stock Exchange Lure ING, Global X Funds
The integration of stock trading in Chile, Colombia and Peru is prompting ING Groep NV (INGA) to create a mutual fund that invests in the three countries, Global X Funds to start a regional exchange-traded fund and Colombia’s Helm Bank SA (PFBHELMB) to form an alliance with Chile’s Empresas Penta SA.
Trading on the new exchange, known as MILA, began today, more than six months after the exchanges in the three countries agreed to allow cross-border transactions and create Latin America’s second-biggest stock market after Brazil.
“There’s a lot of attention on Latin America, and the message we want to send is that there are alternatives to Brazil,” Juan Pablo Cordoba, head of Colombia’s exchange, said in an interview in Bogota. “We’re making it easier for foreign investors to get into our market.”
The combined size is luring financial-services firms looking to take advantage of an increase in trading volume as companies such as Chile’s Lan Airlines SA (LAN), Colombia’s Interconexion Electrica SA (ISA) and Peru’s Grana y Montero SA step up their regional operations.
ING received approval from Peruvian regulators this month for its ING Mercados Integrados FMIV mutual fund. Global X Funds launched in February the Andean 40 ETF that invests in the 40 largest MILA companies. Bogota-based Helm’s alliance with Santiago-based Penta will allow clients to buy Chilean stocks with Colombian pesos, according to a May 24 statement.
“There’s significant capital market integration and we see more companies like Lan becoming regional players and acquiring assets across borders,” said Bruno del Ama, chief executive officer of Global X Funds, an exchange-traded fund company that manages $1.8 billion.
The integration initially will allow trading across the three exchanges before creating a single platform in a second stage. Mexico and Panama may join as part of an agreement signed last month. Bogota and Lima plan to take the arrangement a step further by completing Latin America’s first merger of exchanges.
The Andean exchanges plan to start their S&P MILA40 Index “in the coming days,” Cordoba told reporters today. He said 30 of the 40 companies in the index trade more than $1 million a day.
Integration gives the Andean region a leg up with U.S. funds that look to Brazil for larger trading volume, said Fernando Carrera, a fund manager in Peru for ING, the largest Dutch financial-services company.
“Our first requisite is liquidity, we must gain larger flows,” Carrera said by telephone from Lima.
MILA stocks have a combined value of $655 billion, surpassing Mexico’s $468 billion, according to data compiled by Bloomberg. Average daily traded volume in the past year was $216 million in Chile, $93 million in Colombia and $29.3 million in Peru. That compares with Mexico’s $639 million and Brazil’s $3.79 billion.
Chile’s benchmark index, the IPSA, has outperformed its MILA peers so far this year with a 1.9 percent retreat. Peru’s IGBVL has declined 9 percent in the same period while Colombia’s IGBC has slumped 7.1 percent. The main indexes in Brazil and Mexico have fallen 7.6 percent and 7.5 percent, respectively.
MILA will attract more initial public offerings on the three exchanges from companies looking to tap the region’s combined savings pool, said Andres Gomez, chief of operations at Bogota-based brokerage Serfinco SA, which manages about $1.5 billion in assets.
“A market with more depth and volume will attract more IPOs; that’s one of the reasons this was created,” said Gomez.
Brokers in the region are seeking cross-border alliances so they can place orders in other countries. Beginning as soon as next year, they will standardize platforms to trade directly in all three markets as regulators sync clearing and settlement rules, according to a report by Santiago-based Larrain Vial SA.
MILA’s launch was pushed back three months after Peru’s congress delayed passage of a law standardizing capital gains taxes. Larrain Vial said tax codes vary: the dividend tax, for instance, ranges from 4.1 percent in Peru to 33 percent in Colombia to as much as 40 percent in Chile.
“The tax issue causes skepticism,” said Santiago Abugarade, Latin American equities market manager at Celfin Capital. “It’s a point to be resolved.”
‘Distrust, Political Problems’
Politics pose other obstacles. It isn’t clear who will fill the shoes of outgoing Peruvian President Alan Garcia as the “driver” of MILA and regional economic integration, said Michael Shifter, president of the Inter American Dialogue in Washington, a policy research organization.
“We’ve seen comparable initiatives, and frustrations usually stem from distrust and political problems,” he said. “I don’t think those problems have completely disappeared.”
Peru’s benchmark stock index fell the most in six weeks today on speculation that former army renegade Ollanta Humala, a one-time ally of Venezuelan President Hugo Chavez, may win a presidential runoff and curtail foreign investment. Presidential polls published yesterday showed falling support for his opponent, Congresswoman Keiko Fujimori, narrowing her lead over Humala to 4.1 percent.
Trading volume in Peru will grow by 25 percent annually once the country “calms down” following the June vote, Lima Stock Exchange President Roberto Hoyle said in an interview at the exchange today.
”The market has to absorb who’s going to govern the country for the next five years,” he said.
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