An Equitable Account
Arising from the merger of three stock exchanges formerly operating in Mexico, the Bolsa Mexicana de Valores (BMV) is today the nation’s sole bourse and the greatest in Latin America, after Brazil’s BM&F Bovespa. It also ranks as the fifth-largest stock exchange in the Americas. BMV Group owns the exchange platform as well as the MexDer derivative exchange and custody agency Indeval. Scotiabank describes Mexico as a systemically relevant credit for emerging-market investors seeking high-yielding, investment-grade fixed-income assets. Yet thus far, the BMV’s total value in terms of equities hovers at around 40% of GDP.
Capital flows to Mexico are ostensibly determined by investor sentiment toward emerging markets. Other factors such as the persistently low interest rate environment of advanced economies also makes the Mexican bourse, the Bolsa Mexicana de Valores (BMV), more appealing. The BMV is a vertically integrated business group that operates the exchange itself, as well as the MexDer futures and options derivatives market, the SIF-ICAP over the counter (OTC) inter-dealer market for fixed income and derivatives products, and the custody and settlement and clearing operations. Stocks on the BMV are split into 13 specialized market indices. The broadest benchmark index where performance is determined by market capitalization, though, is the IPC. The Indice Mexico (INMEX) is a market capitalization weighted index of 20 to 25 of the BMV’s most highly marketable issuers, with a minimum market value of $100 million, revised every six months. As of March 2016, the total number of stocks traded on the BMV was 145,138, of which most were local equities with seven being foreign enterprises. Yet close to 70% of Mexican states have no representation on the bourse, which the authorities are working to improve. The 2Q2016 revenues of the BMV, at MXN1.3 billion, were up by 7%, while expenses were down 2% YoY. Record net income came in at MXN253 million, up 33% YoY. Its total assets stood at MXN7.1 billion. In terms of profitability, EBITDA had climbed 17%, on a 53% EBITDA margin.
In 2015 the market capitalization (MCap) of listed domestic companies as a percentage of GDP was at 35.2%, down from a 2012 historic peak of 44.2%. Mexican stocks ended 2015 essentially flat YoY, where dollar returns suffered once the US monetary tightening and world oil price collapse took a heavy toll on peso, which sank to historic lows of 17.2210 against the greenback, down 14% YoY. The benchmark IPC stock index ended at 42,978 points, down 0.4% on the year, which translated into a dollar-terms slump of 15% for the full year. Equities were weighed down during the year by weak blue chip performances including telecommunications firm América Móvil SAB (down 16% YoY) and cement producer Cemex SAB. (down 22% YoY) dented by fierce competition and regulatory constrictions. Among the winners were retail and travel-related stocks, where wage and employment improvements spurred consumption, while a weaker peso and remittances, a full 95.8% of which derived from the US, facilitated growth in tourism.
The benchmark IPC Index rose 238 points, (0.49%) to 48,637 on Monday August 15 from 48,399 in the previous session. The Index had risen 4.12% for the month, and 11.18% during the previous 12 months. The BMV posted its historic high of 48,637 in August of 2016, troughing at 14,008.20 in August of 2005. Its 52-week range was 39,256.58-48,956.06.
THE NAME’S BOND
Mexico is also the region’s second largest bond market after Brazil. By 2015 the government and government-related bonds comprised the bulk of Mexico’s bond market at 85.9%. In 2015, the general government, on 64.5%, was the largest issuer, while non-financial issuers were at 7.5%.
INNOVATING TO GROW
The capital markets are nothing if not innovative to appeal to more investors with new instruments appropriate for their needs. The BVA is keen to get more of Mexico’s SMEs, which account for over 80% of GDP, to list and benefit from growth-enabling liquidity, thus further stimulating the wider economy. Jaime Ruiz Sacristan, President of Bolsa Mexicana de Valores, confirmed to TBY that; “We are collaborating with the Mexican Association of Securities Intermediaries (AMIB) to visit every state in Mexico to speak with companies and convince them of the benefits of listing… not just in terms of equities, but also in terms of debt.” He also explained the creation of “…a new asset class called Fideicomiso de BienesRaices (FIBRA E),” resembling the US Master Limited Partnership (MLP). This facility enables the purchasing of real estate and energy infrastructure projects via the stock market. Back in August 2009, to mitigate damage from the global financial crisis, a Mexican regulatory amendment introduced a new asset class known as Structured Equity Securities, (Certificados de Capital de Desarrollo, or CKDs). The goal was to open up capital sources for local companies, as well as infrastructural projects in Mexico, to spur overall economic growth.
Crippled commodity prices and decelerating growth dented emerging markets, keeping many investors sidelined in 2015. Such liquidity-sapping sentiment infects local enterprises, too, a perennial hurdle to getting more SMEs to go down the listings road.
Mexico’s first public share offering (IPO) came on June 13, 2008, when the BMV itself was listed, with over 13,600 individual investors purchasing shares priced at 16.50 pesos each. In 2015 the local market saw eight IPOs valued at around $2 billion, compared to five in 2014. A further $900 million was issued through real-estate investment trusts (REITs) and infrastructure development funds. América Móvil listed its cellular-towers company Telesites SA in December. Reuters’ revealed that as of October 2015, global IPO volumes overall had declined 31% YoY to just over $43 billion, in contrast to $63 billion over the same period of 2014. And yet a broader assessment revealed that Latin American IPO volumes had climbed a huge 133% to $1.9 billion from $800 million over the same period of 2014. During 2Q2016, two equities were listed, in the form of a follow-up deal from Grupo Hotelero Santa Fe, and the IPO of real estate enterprise Planigrupo, the latter for MXN1.8 billion. Notably, and an exemplar for other Mexican firms, the latter company financed its first projects through a CKD (explained below), and by raising equity through its IPO.
The Latin American Integrated Market (MILA) was launched in 2011, through a combination of the respective bourses of Chile, Peru, and Colombia. It became, at a stroke, the region’s greatest exchange by number of listed companies. The entry of Mexico in June 2014 effectively doubled its scale, with a combined MCap of roughly $1 trillion and almost 1,000 issuers, thereby exceeding Brazil’s Bovespa, historically Latin America’s biggest and most liquid bourse. As of April 2016 MCap was at $836.271 billion. MILA’s trading volume soared from $6.9 million in November, 2014 to $18.8 million the following month, with the Bol-sa de Valores de México making up more than 79% of the total. The figure for Jan-Dec 2015 was $174.052 billion.
Mexico’s bourse thrives on its MILA membership, but has yet to secure a more representative roster of listed Mexican businesses. Many of these, circumstances permitted, must come from among the vast sea of SMEs, and innovative opportunities have broadened the market’s range of offers. And looking ahead, the last word goes to Member of the Board at Mexico Value Partners, Antonio Nacif Kuri, who summed matters up by saying that, “Capital markets in Mexico are still underdeveloped, meaning there is a lot of surplus of money, and people want to receive more than the 4% or 5% returns that they can get by putting their money in the bank.”
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