By Cristobal Vasquez
As the global economy enters a period of stagnation, Asia Pacific and Latin America are the only two regions that appear to be thriving. Chile, Peru, Colombia, and Mexico formed the Pacific Alliance, a trade bloc that seeks to advance economic integration, free trade, and free movement of people. As part of the Alliance, in May 2011, the Integrated Latin American Stock Market or Mercado Integrado Latinoamericano (MILA) was created to offer a greater supply of stocks, issuers, and funding to investors throughout Latin America. Though this stock market is still struggling to establish itself, it is poised to position Latin American companies in front of world-class investors.
“The region of the Pacific Alliance has captured the attention of the global investment community, given the optimum growth of the region and the liberalization of its economy and its market in recent years,” says Alka Banerjee, Executive Director of Global Equity Indices at S&P Dow Jones. “The indexes of S&P MILA Pacific Alliance, that allow investors to follow the 40 largest companies of Latin American MILA, offer to local and international points of reference to measure the region’s growth.”
Employing registered brokers in each of the four member countries, MILA offers members the opportunity to purchase and sell stock of any company listed on the integrated market. An investor in Colombia can buy a Chilean company’s stock in Colombian pesos, using authorized intermediaries to make the transaction. “Transactions are performed in their respective local currency without the need to leave the country, and with book-entry through the local broker, thereby providing easier international transactions with this tool,” indicates MILA’s webpage.
In this sense, several Latin American financial companies are expanding their presence buying other financial institutions in MILA market countries. “Brazil’s BTG Pactual—a Brazilian investment bank—purchased a Chilean brokerage with operations in Colombia and Peru. Various Chilean financial houses [then] moved to Peru and Colombia,” says Peter Kohli, CEO of DMS funds at NASDAQ. These acquisitions support the MILA process, which allows purchasing in local currencies, thus avoiding transactional currency conversion costs and taxes associated with the transfers.
The four countries comprising the Pacific Alliance account for 37 percent of Latin America’s total GDP, averaging a 5.1 percent annual growth rate over the past four years. According to Bloomberg, their foreign trade adds more than $1.13 trillion to the total foreign investment flows in Latin America, representing 45 percent of that same total.
MILA is now the second largest stock market in Latin America, after Saõ Paulo with a market capitalization (measured by multiplying the current market price of one share company’s by number of shares in the market) of $720 billion, and the third largest market in trading volume with $87,000 million a year. However, with the recent addition of the Mexican stock market it will become the most important stock market in the region, with an estimate of $1.25 trillion market capitalization, above Brazil’s Bovespa—the flagship index of Saõ Paulo stock exchange—which records a $1.23 trillion market capitalization.
This attractive market is not exclusive to Latin Americans. World investors willing to join the market can do so through financial instruments that track S&P MILA 40 Index. The Index follows the market behavior of the 40 largest and most liquid companies in Chile, Colombia, Mexico, and Peru, making the market a very attractive option for both worldwide investors and Latin American companies to find international funding and diversify their stock options.
Despite the slow operational start, the integrated market’s numbers are promising. The stock capitalization of the MILA markets shows a positive change of 1.90 percent since the beginning of 2014, given its variation from $601.953 million in December 2013 to $613.287 million in August 2014. Of these promising numbers, Chilean companies registered in the MILA market, account for 42.02 percent, Colombian companies 36.88 percent, and Peruvian with 21.08 percent.
Prior to the creation of the MILA, Latin American stock exchanges, with the exception of Brazil and Mexico, were largely disregarded, and few companies were known besides copper and oil producers. Today, given the macroeconomic stability, low risk rating, and a variety of external economic factors, the region has gained international attention and is on its way to becoming a key player in the current global economy. And with a common language, similar economic policies, and an agreed set of objectives, the odds are in the Pacific Alliance’s favor.
Cristobal Vasquez is an editorial assistant at World Policy Journal.
[Photos courtesy of Wikimedia]