Positioning Medium-Sized Companies in the Mexican Stock MarketBy Gabriela Mastache | Mon, 03/09/2020 - 09:08
Q: What role does BIVA want to play in the Mexican investment ecosystem?
A: BIVA was launched in 2018 with the objective of triggering the expansion of the Mexican capital market. Although BMV has been operating for over 100 years, the local exchange lacks listing and trading depth. However, Mexico has great potential to attract medium-sized, fast-growing companies. There is a great opportunity to increase the number of international actors participating in the Mexican market, expand the amount of capital allocated in equities by institutional investors and increase the number of retail accounts in the country. BIVA is working hand in hand with all listing intermediaries and regulators in order to adapt procedures, requirements and costs to make it more accessible to issue debt or list stock.
We have developed two specific programs to support companies through their listing process, during and after its completion. We have services for each particular case, so companies can take full advantage of public market funding, such as visibility, liquidity and facilities for subsequent issuing rounds. We are also joining efforts with investment banks to incentivize listings of midsized businesses mainly through retail clients, while also working in focused campaigns to increase the number of individual trading accounts through technological platforms and apps.
BIVA has also signed at least eight partnerships with the most relevant trade chambers and associations in the country and we are jointly elaborating specific programs to train their members in corporate governance, financial options and the processes and requirements for public listings. These partnerships have helped us to gain access to an audience of at least 38,000 Mexican companies, with which we will continue working closely in the months to come. BIVA is helping to change the Mexican stock market, it is adding drive and new practices to the market’s functionality.
Q: What does the Mexican investment ecosystem need to become more dynamic?
A: We have had some volatility and uncertainty as a result of both local and global affairs. Therefore, strategies to increase investment dynamism require the participation of the government and private sector. I am confident that 2020 will see more activity and opportunities since some of the controversial events that took place in 2018 are beginning to fade. The 2020 federal budget approved by the Legislative chamber prioritizes sound public finances and no-debt policies. Moreover, the presentation of the National Infrastructure Plan opens up a window of opportunity for private investors to participate in development projects. We are certain this will reactivate capital allocation of pension funds and international investment attraction, thus increasing the number of CKDs, CERPIS and REITs listed in the next months.
If we maintain a message of certainty, it is possible that local consumption and demand for credit will increase. This, aided by low inflation and relatively low interest rates, will lead to a better performance for companies in the coming months, which will bolster liquidity, investment and expansion strategies and probably more public issues. To help companies get to this stage, BIVA has several strategies to provide local and global visibility to its issuers. We have created a unique listing ceremony, with strong social media campaigns and interviews in financial news spaces. We have also created an online channel that is consolidating as a financial and stock market reference to which we frequently invite our issuers so they can address the consumer and investor audience. We also have events called “BIVA Day,” where we hold conferences and panels in diverse global financial hubs to position the Mexican market and its issuers among potential investors. In 2019, we held the first BIVA Day in New York with over 250 attendees. We will be replicating this event in destinations like Chicago, London and even Asian markets. We are certain these efforts, combined with educational and retail campaigns we have organized with brokerage houses, will make for a more dynamic market in 2020.
Q: What are the challenges of democratizing access to the investment ecosystem?
A: Challenges persist in both supply and demand. On the one side, we have the supply, which are listed companies. Mexico still remains a market of family-owned businesses, where founders tend to have little acceptance of compliance requirements and independent counselors. We have been working to educate business people on the benefits of corporate governance and the adoption of global transparency practices.
One of the key trends fostering governance compliance comes from consumers and investors. Now, more than ever, consumers base their purchasing decisions not only on quality and price but also on commitment toward transparency, social and sustainable impact and general well-being. Companies aligned with these trends are expected to improve their performance in the years to come. This context is changing the way companies not only operate, but how they plan their strategies, their internal management and government practices. Investors recognize companies that are able to adapt to compliance and global best practices. In this sense, becoming public and agreeing to full disclosure increase the possibility for companies to acquire more funding and participate in the market under more competitive conditions.
In terms of demand, which is composed of investors looking to participate in the primary and secondary markets, the challenge is in the retail sector. With 130 million inhabitants, there are only 250,000 retail accounts operating in the country. Many people assume that the stock market is only affordable to big and experienced actors. Fortunately, we are seeing a change in that perception, with brokerage houses adapting their platforms and prices to a growing younger population. As evidence, cryptocurrency trading accounts are on the rise, as well as crowdfunding investment activity. It is clear that the young population is willing to take risks in terms of asset diversification, so it makes sense that a properly developed market with more consolidated listed companies will start to grow in trading activity.
Q: What strategies is BIVA implementing to generate awareness among people regarding the possibility to participate in this investment ecosystem?
A: The BIVA Institute has entered 12 strategic partnerships with universities. The idea is to jointly offer both online and face-to-face courses in all states in Mexico. Also, we have created at least five free webinars, mainly with brokerage houses to boost retail activity.
As a technological and modern initiative, we have created a program called “BIVA Ambassador,” where more than 100 college students from across the country are qualifying themselves through courses and then helping us realize market-promotion efforts at schools. We have also created a digital library that contains papers, books and recommended lectures to make financial knowledge even more accessible.
Q: How is innovation impacting the performance of global investment markets?
A: As innovation generates higher expectations and more management positions in investment and stock markets are occupied by millennials, we will surely begin to see higher levels of technology adoption not only for front-office services but for middle and back-office procedures. Innovation trends are driven by the need to decrease operational vulnerabilities and risks, as well as to boost automation and control to optimize time and costs and facilitate compliance requirements. For example, innovation IPOs are now available in the front office as advance analytics, blockchain and AI help to improve decision-making, enrich insights and facilitate procedures. We expect these trends to continue, driven by growth in fintech and the adoption of new technologies by traditional firms. BIVA’s innovation has also positioned Mexico at a different level. Our trading platform, provided by NASDAQ, has the same functionalities as those used in at least 100 stock markets worldwide. This means that international actors can now just connect to BIVA and begin operating in the Mexican market without any additional infrastructure investment, as was formerly required
Bolsa Institucional de Valores (BIVA) is Mexico’s second stock exchange. It started operations in 2018 and aims to contribute to the market’s expansion through innovation, technology and accessibility