Chile, Colombia, Mexico and Peru are going to give it another go.
Long dwarfed by Brazil’s capital market and economy, the members of the Pacific Alliance trade bloc are looking to kick start their integrated equity platform to woo foreign investors who are increasingly picky about where they put their money.
“Capital in emerging markets has become relatively scarce,” said Melvin Escudero, founder of Lima-based advisory firm El Dorado Investments. “Countries and trade blocs need to ensure they look their best.”
Stealing some of Brazil’s thunder by deepening capital-market integration will be one of the topics of discussion as the presidents of the Pacific Alliance nations gather Friday in Paracas, Peru. Separately, companies including Latam Airlines Group SA and Grupo Sura, Latin America’s largest pension fund manager, are also meeting Thursday in Paracas.
If Chile, Mexico, Colombia and Peru feel like they’re stuck in Brazil’s shadow, it’s not hard to see why. Trading averaged $2 billion a day on the Brazilian stock exchange in June, about double that in Chile, Peru, Colombia and Mexico combined. Trading on the bourses integrated trading network, called MILA, was a mere $71,000 a day in the same month.
Toll on Capital Markets
Brazil’s economic woes have taken their toll on the country’s equity market, cutting total market capitalization 52 percent to $716 billion from $1.5 trillion four years earlier. The Pacific Alliance’s combined market value fell 23 percent to $842 billion in the period.
As the entire region adjusts to slower demand for commodities from China, the countries that saved more during the boom are faring better. While Brazil, Argentina and Venezuela blew their windfalls and this year are mired in recessions or stagnating, the Pacific Alliance countries are able to step up spending to bolster growth, while inflation remains under control.
Mexico’s bourse joined its counterparts from the other countries on their MILA trading platform last year. The countries are working out how to remove tax and regulatory hurdles that have prevented the network from being used more widely to buy and sell shares, Peru’s Finance Minister Alonso Segura said at the event in Paracas Thursday.
The Pacific Alliance nations also plan to link the countries’ debt markets, allowing the governments to offer debt to investors in the four countries simultaneously. Sales of company debt and derivative trading would follow, Segura said. The changes involve regulators, brokerages and investment banks and will take time, he said.
“We know it’s not going to happen overnight but we have a clear plan of where we want to go,” Segura said. “We want greater availability of capital, leading to cheaper credit for people and companies.”
For Brazilian issuers seeking foreign investors, MILA could even become an alternative to New York as a market for raising capital, said Alfredo Thorne, a director at the Lima Stock Exchange.
“If MILA grows, Brazilian companies are going to want to sell in MILA and Brazilian funds are going to want to buy securities on MILA,” Thorne said by telephone from Lima. “The only option for Brazil is to get involved in MILA, and that will only expand the market further.”