EVENT HORIZON

Mexico 2014 | FINANCE | REVIEW: CAPITAL MARKETS

While the election of President Enrique Peña Nieto on December 1, 2012 extended confidence in Mexico's real economy and financial markets alike, some pundits see its bourse as a longer-term play based on solid fundamentals, rather than as a wildfire inves

Based in Mexico City, the Bolsa Mexicana de Valores (BMV), is second by size in Latin America only to Brazil—a giant that in 2013 had a market capitalization of $627.2 billion—and is hot on its heels for business, both through local initiatives, and further afield, with the acquisition of an 8.8% stake in the Bolsa de Valores de Lima (BVL), and prospectively a regional tie-in.

Though dating back to the late 19th century, the bourse has been a private entity since 2008, and is a comprehensive platform enabling the trading of equities, debt instruments, including treasury bills, government development bonds, as well as debentures, mutual fund shares, and warrants. Stocks on the BMV inhabit 13 indices for specialized markets, although the IPC is the broadest benchmark of overall exchange performance as determined by market capitalization. More specialized, the INMEX capitalization-weighted index features 20 to 25 of the BMV's most active players, where all are issuers with a minimum market value of $100 million. Meanwhile, the mid-cap IMC30 index is geared toward mutual funds and derivatives markets. And on a sector-specific basis investors can buy and sell constituent equities of the mining, manufacturing, construction, retail, communications and transportation, services, and others indices. The BMV trades electronically via the BMVSENTRA Equities System, with settlement of T+3, between 8:30 am to 3 pm for the capital markets, and 8.00 am to 2:30 pm for debt instruments, from Monday through Friday.

THE NUMBERS

For 2014, the BMV's total assets stood at Ps6 billion, down 1.1% from December 2013. And for the period, total liabilities of Ps608 million were up 78%. As of June 30, 2014 total revenues of Ps1.1 billion had been registered, while EBITDA stood at Ps515.4 million with an EBITDA margin of 45.4%.

The benchmark IPC index had climbed to 46,231.44 as of September 8 from 45,628.09 points at end-August of 2014. According to available World Bank data, stock market capitalization as a percentage of GDP averaged at 26.69% between 1988 and 2012, peaking at a lofty 44.25% in 2012. The BMV has seen an average close of 13,263.98 from 1988 until this year (having since peaked at 46,313.40 in September of 2014).

EQUITIES

In 1H2Q14 the BMV's 150 stocks saw an average daily value traded of Ps12 billion, on a YoY slide of 26%, largely on prevailing global woes. It should be noted, however, that 2Q2013 saw the BMV's historic highest average daily value, making for a high base to live up to. Furthermore, the average daily share volume traded was at 301 million, on 29% shy of the amount of a year before. Quarterly daily average value traded was Ps12.4 billion, with a daily average volume of 312 million shares. The latter represents declines of 22% and 27% respectively when compared to the same period in 2013. With a P/E ratio of 18.27 and market cap of $1.6 trillion as of September 2015, Latin America's wireless behemoth América Móvil SAB is the major component of the IPC index. It saw some losses in 2013 on the prospect of greater competition, having shed close to 10% by October of 2013.

FAR FROM SIC

Active for over a decade, the BMV's International Quotation System (SIC) lets Mexican investors buy and sell foreign securities; moreover in pesos, thus sidestepping possible currency fluctuations. Close to 230 listed securities of 20 countries are represented, including household names such as Coca-Cola, Nestle, Starbucks, Wal-Mart, Google, Yahoo, American Express, and Deutsche Bank. Meanwhile, 45 of the listed securities are ETFs or iShares, which as brokerage house Vector explains, “… are bundles of stock bought and sold in Mexico as a single entity, with the objective being to mimic the movements of an index, industry, or commodity; debt instruments or a specified market in particular." The brokerage outfit continues that, “…90% of SIC operations, particularly of the private banking segment, are carried out in the BMV's secondary market, which means there is no extra cost for arbitration to bring the shares from abroad." For 1H2014, the SIC represented 19% of the value traded.

EQUITY LISTINGS

José Pedro Valenzuela, CFO of CORPORACIÓN ACTINVER S.A.B de CV, Mexico's fifth largest mutual fund (the BMV has three mutual fund indices), with over 170,000 clients, explained the company's motivation behind its 2010 listing in a TBY interview thus; “By listing the company, we became more transparent to the public and more visible to our investors. As the SME that we were at the time, we were able to leverage financial markets to raise capital and finance." Accordingly, the firm spreads the word that, “… SMEs should view the financial market as a vehicle to raise capital and gain a firmer foothold in the market."

The 2Q2014 listings-related income of Ps14.3 million, was Ps2.8 million down YoY marking a 16.4% decline. The 2Q14 witnessed the first equity listing of the year, namely that of Mexican food giant Alsea for the sum of Ps6.9 billion, contrasting to the same period of last year, which boasted four equity listings on an almost four fold print of Ps25.3 billion pesos.

DERIVATIVES TRADING

REITs

According to José Pedro Valenzuela, “One field [offering] an opportunity for investors in Mexico is the FIBRAs (Real Estate Investment Funds, or REITS)." He identified FIBRA Uno, the largest in Mexico, as, “…offering returns of around 7% to 8%." Indeed, BMV data indicates that REITs were more active YoY in 2Q2014 with two listings; the first being that of FIBRA Prologis and the second that of the aforementioned FIBRA Uno, for a combined Ps40.8 billion. The same period of 2013 had seen just one REIT listing for Ps4.9 billion. The first half of 2013 had seen four listings for Ps40.9 billion.

MEDIUM- & LONG-TERM DEBT LISTINGS

Over 2Q2014, 28 new medium- and long-term debt listings were placed in excess of Ps59.4 billion, albeit down 3% YoY. Meanwhile, 1H2014 saw 52 medium- and long-term debt issues, coming in at over Ps96.8 billion, which was down 3% YoY in listings terms and down 24% YoY in terms of volumes raised.

MILA

In June 2014 the BMV announced that by year-end it would become a member of the Latin American Integrated Market (MILA), comprising Chile, Colombia, and Peru, which at a stroke would virtually double its size. While each preserves individual regulatory authority over its respective investment activities, the argument runs that the ability to realize cross-border purchases boosts volumes, which in turn should invite greater number of listings from companies within and beyond the region. And while the detractors of MILA point out its as yet embryonic performance given the pooled size of its constituent markets, the S&P MILA 40 index, tracing the trajectory of the top 40 issues from the three incumbent Andean member bourses, had climbed over 4% as of June 19, 2014, in contrast to the modest 0.5% rise of Mexico's IPC index.

The benchmark IPC index has already more than doubled the bounce-back from the lows seen during the 2009 crunch. Trading Economics' index forecasts for 2020 and 2030, respectively are at 49,494 and 57,280. A 52-week trajectory as of September 2014 reveals an index high of 46,406.50 and low of 37,751.64. Meanwhile, the P/E ratio stood at 25.39 and the return for the period was at a sturdy 17.93% with a market-cap of Ps5.2 trillion. Going forward, then, former excitement may have already been priced in. Thus, the ability of the economy to stand its ground, underpinned by a sound political climate and regional alliances point to a market of longer-term interest.