Saturday, October 09, 2010

Chile, Colombia, and Peru to Integrate Stock Exchanges

Sources:
Counciloftheamericas.org: Stock Market Integration: Chile, Colombia, and Peru
Mercopress.com: Peru, Chile, Colombia Integrate Stock-Exchange Operations
UPI.com: Three-Nation Stock Exchange Deal Agreed
WSJ.com: Peru’s Stock Market Draws Chilean, Colombian Investments

Chile, Colombia and Peru are making the final preparations for combining their individual stock exchanges into one larger stock market beginning November 22. The move will make the stock market the second largest stock market in Latin America following Brazil’s Bovespa. The new stock exchange could reach a total stock value of $460 billion.

Currently the Chilean stock exchange is the largest of the three, with a total stock value of $34.7 billion. The majority of these shares come from the services sector, though the mining sector also contributes a healthy amount of stock to the exchange as well. The Colombian market is made up of mostly manufacturing stocks and has a total value of $16.5 billion. Peru currently has the smallest exchange at only $4 billion in stock value, but has grown 24% over the last two months. It is made up mostly of mining stocks and, like the Chilean exchange, is rated as investment grade.

Peru’s stock exchange is currently the cheapest, making it the most desireable of the three, but all three countries seek to gain from the integration. Chile and Peru are interested in each others’ consumer and mining stocks. Current tax laws and other regulations make it difficult for investors in one country to invest in the others, although the countries have similar economic industries (mining being the most obvious common thread). A more open exchange will create more investment in all three countries.

The integration will take place in two steps and will not result in a complete amalgamation into one exchange. Each exchange will still operate under the relevant regulatory body in each country. The first step, called “intermediate routing,” will give investors in each country access to the other countries’ securities through each country’s regulatory body. This will start on November 22. It is not until the second step (scheduled to start at some point in 2011) that traders will have direct access to all three trading markets. This is also when the market rules and regulations will become standardized.

All three countries are confident in the project, and have already mentioned the possibility of expanding the agreement in the future to include other countries, specifically Argentina and Panama, who have already expressed interest in joining the market.

Discussion:
1) How might this project help smaller economies grow in a way that will increase development?
2) Free trade agreements have been seen as a key to global economic growth over the last 20-30 years. Is stock market integration the next logical progression for the liberal economic project of making markets more open? What risks are involved, both for the economies of each country and for their citizens?

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