June 25, 2013 / 12:10 AM / 5 years ago

Growing pains for Latin America's integrated stock market

NEW YORK, June 24 (Reuters) - The leaders of stock exchanges in Chile, Colombia and Peru clamored on Monday to tell investors that buying shares in the region was getting easier because of their two-year-old market integration efforts, although tax and tariff differences remain.

In presentations and meetings with investors in New York, the heads of these exchanges sought to raise the profile of the Latin American Integrated Market, otherwise known as MILA.

Stubborn challenges of eliminating or reducing differences in tax regimes and red tape to boost market trading volumes remain, they acknowledge.

“We were not able to iron all the issues before we started MILA. There are differences in the countries,” said Francis Stenning, chief executive officer of the Lima Stock Exchange.

“At least I feel the pressure. Lima is the most expensive exchange of all in terms of the tariffs ... I now feel a lot of pressure to make an adjustment in terms of tariffs. Tax issues too,” Stenning said.

Meanwhile, plunging emerging market asset prices are making the task of convincing investors to put capital to work in emerging markets all the more difficult.

The S&P MILA 40 index, which tracks the top 40 issues from the three exchanges out of 552 listings in total, is down nearly 20 percent year to date.

MILA works by allowing, for example, a Colombian investor to purchase shares in a Peruvian-listed company using a broker in Bogota. Countries maintain regulatory authority over the trade but the ability to make the cross-border purchase increases volumes, a key component to attracting future stock listings by companies in and out of the region.

The MILA executives emphasized integration as a first step toward what could be a full merger of the exchanges.

“We were afraid that if we went the path of the merger conversation things would fall apart because of political issues,” Juan Pablo Cordoba, the head of the Bogota stock exchange, told reporters.

“It proved to be a great idea because we are showing that there is a lot of benefit in having an integrated market and moving further into this integration without the political noise,” he said.


The three countries are known for open trade and pro-market economic policies. They want to foster intra-regional stock trading to serve as a counterpoint to Brazil’s dominance where its stock market, the largest in Latin America, has a capitalization of $627.2 billion.

MILA by comparison has a combined market capitalization of $497.7 billion, according to Thomson Reuters data, putting it ahead of Mexico’s nearly $300 billion.

But trading volume last year on the three MILA exchanges was $91 billion, compared to $126 billion in Mexican stocks.

Mexico is reviewing legislation, that if passed, would allow it to join MILA, perhaps as early as 2014, the executives said.

“We want to bring in new actors,” said Jose Antonio Martinez, head of the Santiago Stock Exchange. “It is more interesting for investors to have two poles of investment in Latin America,” he said, referring to MILA and Brazil.


But despite open economies and pro-market governments in addition to a history of scant trade among the respective countries, the officials acknowledged the promotion of intra-regional stock ownership faces regulatory and tax hurdles.

“We’re very open to the world, but we do not trade much among ourselves,” said Chilean Foreign Minister Alfredo Moreno told the investors in New York.

Intra-regional trade in Europe represents 71 percent of gross domestic product, but only 29 percent in South and Central America, and the Caribbean, he said.

The purchase by Brazil’s BTG Pactual of a Chilean brokerage with operations in Colombia and Peru, and the expansion of Chile’s LarrainVial SA, Corpbanca SA and Banco de Credito e Inversiones SA into the two other markets are a bet MILA is going to work, said Cordoba.

France’s BNP Paribas expects by August to have a fiduciary trust company running in Bogota to tap into the MILA market. It wants to establish custody and clearing services in order to take on market leader Citibank.

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