Aite Group bets on LatAm trading opportunities

Research published today by research and advisory firm Aite Group suggests that Latin American stock exchanges offer new trading opportunities for European investors asequity markets across Latin America are seeing gains as they exploit initiatives aimed at integrating stock markets, adding new products, and improving market liquidity.

Brazil and Mexico are committed to creating new opportunities for traders while healthy economic growth will continue to drive Peru, Chile, and Colombia as they seek to upgrade their trading environments.

In Brazil, Aite Group expects to see continuing growth in BM&F Bovespa’s corporate exchange traded fixed income market due to changes in interest rates and other macroeconomic factors. Trading by foreign participants has risen to 25% of the Brazilian market this year.

Its derivatives market is likely to offer additional opportunities for hedging as debt issuance increases ahead of the 2014 World Cup and 2016 Olympic Games. Additionally, equity markets saw volumes reach an all-time high in 2012, with record participation from European investors, driven by the removal of a stamp tax on equity market inflows.

In Mexico, the outlook for market and volume growth is optimistic. Both the derivatives and equity markets should see upticks in trading volume resulting from upgrades in trading technology, and the introduction of new derivatives products. Additionally, the positive economic growth outlook should prove to be a fundamental driver for the equity market.

Unique trends apparent among the smaller regional markets include the integration of the Chilean, Colombian, and Peruvian stock exchanges into a single marketplace—the Mercado Integrado Latinoamericano (MILA). MILA’s formation is assisted by recent years of growth in market capitalization for the Andean nations.

“MILA is essentially a ‘winwin’ for both foreign and domestic investors. It will be a natural outlet for the growing pension fund market as well as for domestic retail investors. In Chile, for example, domestic retail investors constitute about 50% of the market and mutual funds, 20% to 25%,” said Danielle Tierney, analyst covering Latin American capital markets at Aite Group.

Capital markets in emerging countries have grown exponentially, in both value and complexity, since first starting to attract the mainstream attention of international investors over a decade ago. Despite the growth of emerging LatAm markets, expanding market depth remains a challenge, with many of the larger markets focusing on ways to attract liquidity across asset classes by developing capital markets infrastructure and associated technology. Even so, strong opportunities exist for US and European investors in LatAm capital markets.

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