Clarifying Mexican Stock Market MythsWed, 02/21/2018 - 14:19
Miners often lack access to funding in the Mexican market and normally choose to list their companies on foreign exchanges, particularly the TSX. BIVA, the country’s new stock exchange that will compete with the BMV, could help change that. “We think it is important for mining companies to approach financial intermediaries, expand their funding sources and reach the public market,” says Fernando Pérez, BIVA’s Executive Director. “Our value proposition for encouraging mining companies to list on BIVA is to provide them with strong visibility.”
With about 150 listed entities, Mexico has not yet reached the point at which BIVA can segment the market and offer a specific value for each sector. But first things first: for the market to grow substantially, the myths surrounding it need to be clarified, says Pérez. “We must help demystify the stock exchange, which is achieved through information sharing, communication and by approaching different players, such as broker dealers, investment banks, investors, associations and universities.”
Pérez adds that one of the biggest myths about the Mexican public market is that it is very expensive to join. He explains that, when setting aside the effort and investment required for companies to improve their corporate governance and financial reports, once they reach their institutional peak it is costly neither in relative nor absolute terms. For example, all equity placements made between 2012 and 2017 cost less than 3.5 percent of the total amount placed, on average, while in the US this expense fluctuates between 6 and 8 percent. Pérez says that listing gives a company a rubber stamp that fully repays its investment.
Another myth that needs to be wiped out is that the stock exchange is only for high-net worth investors. “The truth is that broker dealers as well as investment funds are welcoming retail investor participation,” says Pérez. For example, RLH issued MX$500 million in capital a few years ago and was so successful that it followed up with another option for MX$1.5 billion and has other issuances scheduled. “BIVA strives to be a much more inclusive and approachable stock exchange,” he says.
BIVA also understands that a stock exchange by itself cannot significantly increase market participation, so its focus is rather to perform as a disruptive player. Among the desired impacts is to modernize both the stock market and its regulatory framework. “Thankfully, a regulatory overhaul was conducted by the Mexican Financial Authorities, not only for the creation of BIVA but to modernize the market’s regulatory framework as a whole,” says Pérez. As for stock upgrading, BIVA will have one of the most advanced stock exchange technologies worldwide, including a negotiation engine and a market-surveillance system, both provided by NASDAQ and used in over 70 foreign markets.
Over the next three years, BIVA’s objective is to grow the number of listed companies by 30 percent and operational volume by 50 percent. BIVA decided to associate with FTSE Russell for the design, construction and distribution of its indexes. “We both benefit from this partnership. BIVA provides the market knowledge and the local relationships, while FTSE contributes with its expertise on solid corporate governance and index-building methodology,” he says. The institutional stock exchange also seeks to join efforts with BMV to help the stock market to develop. “We have seen a lot of willingness from BMV to collaborate with us,” says Pérez.
BIVA’s strategic alliances will not extend to joining the Latin American Integrated Market (MILA). “We believe that MILA is still a young initiative and we do not see any particular encouragement to join it. We believe that it is much more important to focus on the Mexican market as well as other strategic alliances in other geographies,” says Pérez. Rather, BIVA will focus on promoting the national stock market, highlighting the need for all players to work together to foster a stock market ecosystem. Pérez believes the conditions exist in Mexico to promote the economic certainty and market stability that stock markets require to thrive, including an autonomous central bank and the Treasury Discipline Law. These factors will outweigh any political fallout from the 2018 presidential elections. “I think that Mexico’s stability goes beyond the party that wins an election. I believe the country is made up of solid institutions,” he says.