Small investor Ricardo Mendoza has been urging his Mexico City stockbroker for years to find a way for him to buy into the boom in Brazil’s Bovespa stock market. He has had little success. Without the know-how to move into more sophisticated cross-market products, Mendoza, like millions of other Latin Americans, is limited to the 80 or so companies that also list in New York to be able to diversify out of Mexican stocks. But with the region’s bourses pushing already record highs further into the stratosphere, Latin American stock exchange federation FIAB and the Inter-American Development Bank aim to launch a regional market for shares this year.
Although the initiative will not get near to merging bourses into a single index, it should give brokers and investors across the region the ability to buy and sell shares in lucrative, medium-sized companies that do not have the minimum, $100 million free float required to issue American depositary receipts. FIAB hopes the plans will also increase the investor pool for Latin American companies, helping to reduce their reliance on often costly bank financing, and increase liquidity in exchanges where trading is often dominated by a handful of powerful blue-chip companies. "We’re not talking about an integration of stock market capital, as seen elsewhere in the world, but an integration in terms of buying and selling stocks in other countries in Latin America," says Guillermo Prieto, president of the Mexican Stock Exchange.
Following agreements between Bovespa and the Mexican Stock Exchange, as well as brokerages and clearing and depositary operations, Mexico and Brazil – the region’s two heavyweights with a combined capitalization of $850 billion – will start the ambitious programme with a test run of 25 Brazilian stocks and 15 Mexican stocks. Most of the companies chosen meet the strictest disclosure rules because they have issued ADRs, but the longer-term plan is to get smaller corporations from Lima, Bogotá and Santiago involved, especially as the Peruvian and Colombian bourses have been some of the world’s best-performing in the past three years. "We want stock purchases to be done in our own countries instead of going to Wall Street, to contribute to the development of our markets," says Bovespa’s president, Raymundo Magliano.
Trading volumes certainly need a boost in Latin America. Stock ownership is dominated by a few wealthy business leaders who have little incentive to trade, while family-owned corporations often manage only a small share float. In Mexico, telecom and cement companies Telmex and Cemex, along with a dozen other companies, account for more than three-quarters of the bourse’s capitalization. According to a recent World Bank report, there are fewer listed companies on Latin American bourses than a decade ago and the exchanges’ capitalizations as a ratio of GDP are much lower than they should be.
