At the NeMa Americas conference in New York last week, industry leaders spoke about the opportunities for investment in the Latin American region, and one way to boost that investment has and will continue to be the cooperation and coordination of the various nations within the region.
A primary example of coordination has been the establishment of Mercado Integrado Latinoamericano (MILA), which links the trading platforms of the capital markets of Chile, Colombia and Peru. This integration allows investors to access a larger market, which jointly has the second highest market capitalization in the region behind Brazil.
“Not unlike Europe, Latin America seems like it would be ripe for streamlining a number of markets into a single capital market,” said Michael Drake, vice president, Investor Services at Brown Brothers Harriman.
Drake drew the analogy to the National Football League, which utilizes a profit sharing model to create parity within the league. As a result, games are more competitive, and the NFL has become one of the most profitable and popular leagues in the world.
NFL owners “realized their competition isn’t with other [NFL] teams. It’s with [other sports leagues],” said Drake. Similarly, Latin America’s competition does not exist within the individual countries, he said, but with other regions like Asia, Europe and North America. “Every market has to buy in to the idea that they have something to gain by adopting a collective agreement, rather than competing against their regional neighbors.”
In 2014, Mexico’s stock exchange, Bolsa Mexicana de Valores, is expected to join MILA, which will add more depth to a securities market in need of more product offerings.
One area of expected product growth is ETFs. Last week, Horizons ETF Group launched a fund that tracks the S&P MILA 40 Index, which follows MILA’s largest and most liquid stocks. This offering is the first Andean-equity focused ETF launched in Colombia and could be a sign of similar products to follow.
In addition to adding ETFs, MILA also expects to grow through new initiatives to enhance foreign exchange and custody processes. One of the challenges is that the three nations involved have different currencies and trading outside the local market into one of the other two requires currency conversion, creating foreign exchange risk. To remedy this problem, earlier this month the three countries agreed to integrate their foreign exchange markets.
Additionally, the countries are working towards a new custody model. Currently custody lies at the CSD level, but the MILA participants want to adopt a custodian approach, so that investors can choose their own sub-custodian for settlement, rather than having the CSD as the only option.
Through this integration—whether its through true consolidation such as with NYSE Euronext or through enhanced cooperation—the Latin American region is likely to be more competitive with other regions.
Capital Market Integration Increases Latin American Competitiveness
At the NeMa Americas conference in New York last week, industry leaders spoke about the opportunities for investment in the Latin American region, and one way to boost that investment has and will continue to be the cooperation and coordination of the various nations within the region.