Sunday, September 20, 2009

Latin America Moves Toward Integrated Exchanges

Sources
"Brazil Bourse Aims to Open Region’s Door" The Wall Street Journal
"Andean exchanges move to integrate" The Financial Times
"Chile, Columbia, Peru Agree To integrate Stock Exchanges" Nasdaq.com

On September 10, 2009, representatives from the Chile, Columbia, and Peruvian stock exchanges announced that they would integrate their respective stock exchanges by late 2010. The group will determine whether to integrate the exchanges by creating a single index or through cross-listings by March 2010. On September 16, 2009 the Brazilian financial exchange BM&FBovespa SA announced that it was pursuing an agreement that would allow the cross listing of stocks with the Chilean, Columbian, and Peruvian exchanges.

The integration of the Chilean, Columbian, and Peruvian stock exchanges creates a market with a combined market capitalization of around $300 billion that will have an average trading volume of $225 million per day. Currently there is very little cross border investment by private pension investors between the countries. The integration should encourage cross border investment between the countries and will provide investors in each country with more investment diversification opportunities because of the different composition of each country’s exchanges. For example, the Chilean stock exchange is comprised of a mix of energy, trade, and service companies, and the Columbian stock exchange is composed primarily of banking and oil companies, whereas the Peruvian stock exchange is composed primarily of mining companies. The mix provided by the integrated exchange will allow individual investors to benefit from growth in the Latin American region and help diversify investors to reduce risk from the economic fluctuations of each country’s primary output. The integration will also provide a new source of capital for companies within the region that need to raise capital because the combined exchange will have increased liquidity and decreased volatility (the Peruvian stock exchange fell 60% in 2008 and gained 93% so far this year). The countries also expressed an interest in permitting other countries to join the combined exchange as the exchange develops.

One week after the announcement of the Chilean, Columbian, and Peruvian agreement, Brazil’s exchange, BM&FBovespa SA, announced that it was seeking an agreement with the three exchanges that would permit cross listing of derivatives and stocks on the exchanges. Bovespa also announced that it was seeking cross listing agreements with both the Mexican and Argentinean exchanges. Brazil’s exchange currently has a market capitalization of slightly over $2 trillion dollars and is currently the region’s largest exchange. The Chilean, Columbian, and Peruvian exchanges declined to comment on Bovespa’s announcement.

Questions:
Do you think that the combined Chilean, Columbian, and Peruvian integrated exchange will eventually grow, both organically and by adding other countries, to challenge BM&FBovespa SA as the premier exchange in Latin America?

What is the biggest regulatory hurdle facing the integration of Latin American exchanges?

1 comment:

HugoChavezWatch said...

Yes I think the exchanges should integrate. Plus these countries are good friends of the USA. Not that that is the only reason. In the future perhaps the 2 pesos and soles de Peru (3 currencies) will become like an Euro. This would lift Peru. This is quite useful info.