EconomyThe end of the stock market paradox?

The end of the stock market paradox?

The bags in Mexico grow dwarfs. In July 2018, the Institutional Stock Exchange (BIVA) ended the dominance of the Mexican Stock Exchange (BMV) over the stock market. Its irruption promised lower costs and agile processes, which, in theory, would result in more companies in the capital market. BIVA directors projected the arrival of some 50 companies, but not only have new stations not arrived, they are leaving.

The last to announce its intention to delist was Monex, which joins Grupo Sanborns, Bachoco, Aeroméxico and Grupo Lala, to name a few. Each one with its reasons, but most agree that it is due to a low valuation by investors. The problem is broader: having few companies listed on the stock market discourages investors from entering the local market, and the scarcity of investors detracts from the interest of companies to go public. The low level of participants on the supply and demand side limits efficiency in price formation, explains María Ariza, general director of BIVA. “This has impacted the valuation of listed companies, so they find relative advantages in leaving the market.”

It is not just about the valuation of companies, but about the market in general. In June, during the Forum 11 of issuers of the BMV Group, its general director, José-Oriol Bosch, stated that despite the fact that the main market index, the S&P/BMV IPC, scored an all-time high of 56,609.54 points in April, its valuation was below what was recorded in 2013 –in dollars, considering the depreciation that the currency has suffered–. “That, definitely, has been a brake for us to have new placements,” he said.

One of the problems is the investor base. In two years, the volume of accounts in brokerage houses multiplied 10.3 times to 3.1 million; but the value is still small since 99% of the accounts are for less than 15 million pesos. “Three million is nothing, if we see it with developed markets, such as the United States, where more than 60% of the adult population invests directly in the stock market; in Mexico, it is only 3%-4% of the population, it is nothing,” said Oriol.

There is much to do, and it must be done by all market participants. Ariza points out that costs must be reduced for companies interested in listing, expanding the options for participation by institutional investors, including new types of investors, incorporating a tax benefit and improving the areas of opportunity that exist in regulatory matters to make it more accessible. the market to small and medium enterprises. Jesús de la Fuente Rodríguez, president of the National Banking and Securities Commission (CNBV), agrees:

“We need to be more flexible in some aspects of the regulatory framework, more flexible, and let’s not take so long to give authorizations for the placement of securities.” For August, the authorities are preparing a legislative “package of changes” that would help unblock pending issues, according to Alfredo Navarrete, head of the Banking, Securities and Savings Unit of the Ministry of Finance. The goal is for this agenda to be discussed in Congress starting in September.

grow supply

In 2021, more than a dozen start-ups in Latin America reached the valuation of 1,000 million dollars. This unicorn boom that the region has experienced –including Mexico– is a serious option to increase the supply of issuers in the stock markets, although this brings the challenge of increasing the attractiveness of entering the market. In December, for example, the Brazilian unicorn NuBank made its share issue on the New York Stock Exchange, making it clear that the interest was not in the Brazilian Stock Exchange.

The strongest competition is not between exchanges, says Oriol-Bosch, it is with developed markets, in particular, the United States. Only last year, Mexican companies placed three times more debt abroad than in the country.

To attract these unicorns, the BMV is already sharing experiences with places like Tel Aviv, in Israel. “One of the paths being explored is double listing, where a Mexican company can be listed in two markets by offering its shares simultaneously in the same initial public offering,” says José Manuel Olivo, director of Promotion and Issuers of Grupo BMV.

For now, the fintech Covalto, formerly Credijusto, has already merged with a SPAC (specific purpose company for the acquisition of companies) to be listed on the Nasdaq in the first quarter of 2023, with which it will become the first Mexican firm of this sector to be listed in that market.

But it’s not all about big business. In fact, one of the largest veins is found in small and medium-sized companies, which is why “BIVA’s objective is to attract small and medium-sized companies to democratize the market, expanding the number of issuers and improving options for investors”, assures Ariza; only that to advance in the mission it is necessary to intensify the work to publicize the benefits of entering the market, says De la Fuente.

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