Mobius Stock Pick Faces Competition and He Says That May Be Good

  • Competition for Bolsa Mexicana may improve business, he says
  • Exchange operator is fourth-biggest Mexico holding in his fund

The threat of competition to Mexico’s only stock exchange persuaded at least one bank to cut its rating on its shares. Mark Mobius says not so fast.

“Competition often stimulates the market and results in even better business for the incumbents,” Mobius, whose $872 million Templeton Latin America Fund was the second-largest shareholder of Bolsa Mexicana de Valores SAB, said in an e-mail. “A small piece of a larger pie may be better than a large piece of a smaller pie. Whether that will be the case in Mexico remains to be seen.”

The exchange operator is the latest business to face the potential for increased competition after President Enrique Pena Nieto pushed through sweeping changes in laws to the financial, telecommunications and energy industries. Should a request to create a new bourse be approved by the Finance Ministry, the nation’s companies will have the option to choose where to list their shares. HSBC Holdings Plc analysts led by Carlos Gomez-Lopez cut the shares to hold last week, saying they have limited room for a rally.

Central de Corretajes SA, whose businesses include an inter-dealer broker and financial platform developer, last month applied for a license to operate its Bolsa Institucional de Valores. The holding company, known as Cencor, has said it expects the Mexican market’s size to increase by 30 percent in the first two years of operation. It also hopes to lure away some companies that are already listed and bring new medium-sized businesses public, according to Chairman Santiago Urquiza. The new exchange isn’t focused on being exclusively a lower-cost alternative to the Bolsa, he said.

Cencor is in the process of raising capital from investment funds to cover a portion of the 300 million pesos ($18 million) needed to stand up BIVA, whose officials have been in touch with Mexican government officials for the last two years, Urquiza said.

“The idea is 10 years old; simply it’s just now that we’re seeing the chance to make it happen,” Urquiza said from Mexico City. “The most significant goal is how to take the market to a more developed level.”

Mexico’s Finance Ministry declined to comment on the approval process.

The Bolsa is already preparing for the possible arrival of BIVA by reviewing its businesses and is hopeful that any new exchange would have the effect of increasing the number of publicly-traded companies, according to Chief Executive Officer Jose-Oriol Bosch. He said that the bourse already faces competition in many of its businesses and has an advantage because of its diverse revenue sources, which include clearing and derivatives.

“What we’re not going to do is just sit there with our arms crossed,” Bosch said in an interview in Mexico City. “What we’re missing in the country isn’t exchanges, it’s issuers.”

Mexico currently has 145 businesses whose shares publicly trade, compared with 512 in Brazil. There, the BM&FBovespa SA still remains the only exchange operator after the threat of new competition previously prompted HSBC and Banco Itau BBA SA, the corporate and investment-banking arm of the biggest Latin American bank, to estimate the company could lose as as much as 30 percent of its market share.

Bolsa shares fell by the most in two months on Oct. 30, the day after organizers of the new exchange held a call with reporters to discuss their plan. The stock climbed 0.3 percent to 26.79 pesos Thursday in Mexico City.

“I don’t know how big of an impact it’s going to have, but there’s definitely no doubt that it will,” said Carlos Hermosillo, an analyst at Corp. Actinver SAB who has a hold recommendation on the shares. “To go from not having competition to having competition is of course a significant change.”

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