The Mexican Stock Exchange, better known locally as the Bolsa Mexicana de Valores (BMV), has been an active part of Mexico’s financial sector since well before the revolution soon after the turn of the 20th century. As the second largest stock exchange in Latin America, bested only by Brazil’s BM&FBOVESPA, the BMV has been a key source of financing for both the public and private sector, and has grown tremendously in weight as the Mexican economy started out on the road to liberalization in the 1990s. By the end of 2011, the total market cap of the companies listed on the BMV was over $450 billion, though plans are in the offing to boost this pool of liquidity.
The BMV’s principle index, the IPC, is composed of the 35 largest firms on the market, though there are a further 12 different indices that measure different sectors and the market caps of the other 120 companies listed in the main market. One of the leading firms listed on the index is the BMV itself, following demutualization and the launching of an IPO in 2008. Companies featured in the IPC need to have a minimum market capitalization of $100 million to qualify for inclusion, while the index is revised every 6 months.
Trading is conducted electronically via the BMV-SENTRA Equities System. Settlement is performed on a T+3 basis, with S.D. Indeval acting as the central depository. The BMV is open Monday through Friday from 8.30 am to 3.00 pm for equities, and 8.00 am until 2.30 pm for bonds and other debt instruments.
There are 34 active brokerage firms on the BMV, with foreign firms having a strong presence. Many of the locally owned and operated brokerage firms tend to be owned by large banking concerns, though exceptions, such as Vector Casa de Bolsa, have also stamped their mark on the bourse, though often through the internationalization of operations. The market also features 33 registered mutual funds that are actively traded, and are specifically designed for small- to medium-sized investors to take positions in a broader range of stocks, bonds, and venture capital offerings.
According to the Dow Jones Mexico Titans 20, the main component stocks for its index, reflecting the overall market cap and liquidity of the companies on the BMV, are América Móvil, Fomento Económico Mexicano, Grupo Televisa, Grupo México, Wal-Mart Mexico, Grupo Financiero Banorte, Cemex, Grupo Bimbo, Grupo Elektra, and Industrias Peñoles. Overall, the main players in the index reflect a diverse selection, with finance and banking institutions being far from dominant. If there is dominance, then it would lie with América Móvil, a telecoms provider, which has a market cap well in excess of $90 billion, and making up nearly a fifth of the BMV’s total market cap. Over the course of 2011, the IPC lost some 3.66% in value, closely tracking the movements of the neighboring markets in North America. With the Mexican economy so closely tied in trade terms with its NAFTA partners, this is unsuprising. Over 1Q2012 the BMV staged a rally, with the IPC gaining some 6.3%, with the rally being sustained through the month of April. However, the second gust of the global financial crisis has begun to take a toll in May 2012 as investors seek safe havens.
Despite the relative strength of the market, the level of IPOs has been low. “On the IPO side, regulation costs are relatively high, but there is also a lack of culture in understanding the advantages of being listed,” Edgardo M. Cantu, President & CEO of Vector Casa de Bolsa told TBY. “The challenge is to convince
Mexican business people of these benefits.”
Other traded securities on the BMV include Fibras, which function in a similar fashion to real estate investment trusts, and structured equity securities, called CKDs on the local market. CKDs made a fairly late appearance on the BMV, only being enabled in 2009. Their creation was to enable the local pension funds industry to take part in the long-term financing of projects or companies within Mexico. Current rules limit Mexican pension funds, known as Siefores, to investing in publicly owned securities, while restricting them from investing in any form of capital contribution. Although a relatively small market at present with only 17 listed according to the BVM, the size of Mexico’s pensions industry mean that CKDs could play a more prominent role should the investment restrictions on pension funds remain in place.
The other major part of Mexico’s capital markets is the bond segment, with government debt and private corporate debt being both listed. CETES, or Mexican Treasury Certificates, and UDIBONOS, which are CPI-linked bonds backed by the government that are particularly attractive for pension funds. Following the Tequila Crisis in 1994, Mexico has been cautious with its bond issuances, and has ensured that its public finances have been solid enough to make a splash among foreign institutional investors. The country’s inclusion in the Citi World Government Bond Index in 2010, as well as other global bond indices, led to a sharp increase in foreign investor interest.
The cautious work over the past two presidential administrations has enabled Mexico to issue government bonds with almost unheard of maturities for Latin America, including the first $1 billion “century bond” for the region in 2010. In March 2012, the country was successful in issuing a $2 billion, 32-year maturity bond with a 4.75% coupon and yield of 4.84%, just 170 bps above similar maturity US Treasury bonds. And the story is similar for peso-denominated bonds, with the first 30-year maturity certificate being issued in 2006. The popularity of the bond market extends beyond international investors, with cautious locals seeing them as a more secure investment than equities instruments. “Mexicans are still favoring short-term, fixed-income products,” Héctor Madero, President & CEO of Grupo Actinver, told TBY. “That’s been the case for the past 20 years.”
In December 2011, the BMV’s operators inked a deal with their compatriots in Chile, Peru, and Colombia to create a unified stock trading platform for Latin America. Known as the Mercado Integrado Latinoamericano (MILA), the newly established trading platform, which started operations in May 2011, will include 134 of the BMV’s largest stocks, and expand MILA’s liquidity pool to over $1 trillion, still behind Brazil’s BM&FBOVESPA ($1.22 trillion), though well in the hunt to become the largest trading pool in Latin America. MILA’s underlying infrastructure is likely to use FIX Protocol, in common with many other digital trading platforms. With a geographic range extending from the tip of South America right up to the US border, MILA may well become a more interesting destination for emerging market funds. λ
© The Business Year