Madrid's Latin Play Is Paying Off

Its Latin American index is showing surprising resilience six years after its debut

WheN Spain's Bolsa de Madrid launched a stock index of Latin American blue chips in 1999, it hoped to take advantage of the euro's debut that year to lessen the currency risk for Europeans investing in Latin stocks. For Latin American corporations, it promised direct access to Europe's new single capital market linked to the euro. The Latibex, as it's called, soared the first three months of its existence and then plunged with the bursting of the dot-com bubble. It has been making a slow recovery ever since.

Now, the index is finally showing signs of life. Although on Apr. 30 it was at 1036, the exact same level it hit the day the market was launched, its capitalization has shot to $160 billion, up from a paltry $12 billion in 1999. That makes it the third-largest market for Latin American stocks after Mexico's and Brazil's exchanges. With most European stocks flatlining, investors are hungry for shares of companies benefiting from fast-paced growth in Latin America. The index now trades 34 of the region's largest companies, including heavyweights such as Teléfonos de México (Telmex) (TMX ), Petróleo Brasileiro (PBR ), Corona beer producer Grupo Modelo, and Enersis (ENI ), the Chilean electricity company. "It has been a long haul across the desert," says Latibex Director Jesús González Nieto. "But we always knew this would be a long-term project requiring lots of work."


Although daily turnover is still tiny, rarely exceeding $7.5 million, trading volumes are up 50% from a year ago, reflecting Latin America's improving outlook. Not all emerging-market plays with indices in Europe have fared as well. Germany's Newex, created in November, 2000, as a joint venture with the Vienna exchange, is in its death throes. And French plans for a Latin American index never got off the ground. "That the Latibex is still afloat is a feat in itself," says Pablo Fernández, a professor of finance at the IESE business school in Madrid.

Several legal and technical hurdles had to be overcome, including Chilean demands that investors in its stocks pay taxes to Chile. But Madrid worked to cut the red tape. "We wanted to have a presence in the Spanish market, because there is real perspective for growth there," says Ruy Echavarria, investor relations manager at Telmex.

Investors are finally reaping some benefits. Last year the Latibex climbed 30%, making it one of the best-performing markets in the world. Successful as it has been lately, the Latibex still faces enormous challenges. It hasn't attracted large international funds, which invest in American depositary receipts or directly through Latin American exchanges. For now, the Latibex is sustained by retail investors and smaller fund managers. But they show no sign of pulling back.

By Carlta Vitzthum in Madrid, with Geri Smith in Mexico City

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