A new South American stock exchange that combines the bourses of Chile, Colombia and Peru begins operations Monday, but kinks in the electronic trading system, lingering questions over cross-border tax rules and a losing year so far in the stock markets of all three countries have taken some of the excitement out of opening day.
The new market is called the Integrated Latin American Market, or MILA, and in terms of the number of companies that will be listed, about 560, it will overtake Mexico as the largest stock market in Latin America. In terms of combined market capitalization of the listed companies, MILA would become the region’s second-biggest bourse, with Brazil first and Mexico third.
The aim of the new multi-border stock exchange is to provide an additional platform for investors to bet on companies, as well as for the companies to secure funding through additional share issues. The individual stock markets of Chile, Colombia and Peru often find themselves in the shadow of Brazil and Mexico, meaning the companies often have less access to capital for expansion projects.
The launch of the new market doesn’t mean the disappearance of each country’s local exchange. The Santiago Stock Exchange, the Colombia Stock Exchange and the Lima Stock Exchange will continue to operate normally.
After two years of planning and plenty of delays and bickering behind the scenes, regulators recently gave the new exchange the green light. MILA’s organizers, which include the three nations’ local bourses, are hyping its potential.
“This dream…is now crystalizing after a two-year journey,” said the Colombia Stock Exchange in a statement Friday. “This will be the era of opportunities.”
The market will include some of Latin America’s bluest blue-chip commodity stocks and others, including Chile’s largest retailer Falabella , Peru copper giant Southern Copper Corp. and Colombia’s state-controlled energy company Ecopetrol , which is riding atop that country’s oil boom. Daily trading volume in MILA could reach $300 million during the early stages, officials have said.
But on the trading floor trenches in Santiago, Bogota and Lima, there is plenty of uncertainty mixed in with the optimism.
“We’ve already been in a testing phase with MILA and will, in reality, continue to be for some time,” said a trader in Santiago who asked not to be named. “True integration will only come when we’ve leveled tax, regulatory, reporting and other issues.”
MILA is designed to work something like this: A retail or institutional investor in say, Colombia, who wants to bet on a company such as Chile’s LAN Airlines will simply call her local broker who, in theory, will be a trained expert not only on Colombian companies but also those of Chile and Peru. The Colombian broker would then put in a buy or sell order on the MILA exchange, and a brokerage firm in Chile, in partnership with the Colombian broker, would execute the order in Chile’s local currency.
But some brokerage firms acknowledge that cross-border agreements between brokerage houses are yet to be finalized. What’s more, it will take time to turn brokers in each of the three countries into stock experts for two more countries beyond their own.
Also damping some enthusiasm is the fact that the blue-chip stock market indexes of all three participating countries are in the negative in 2011, after soaring high in 2010. Chile’s main index is down nearly 2% this year, while Peru’s is off 3.4% and Colombia’s stock market is in a major slump, down 7.4% since Jan. 1.
Angela Hernandez, head of research at brokerage firm Corredores Asociados in Bogota, said despite the obstacles she is confident that in time MILA will prove to be a success.
“The respective stock markets in Chile, Peru and Colombia have had a tough year but that’s because we’re coming off historical highs in 2010,” Hernandez said. “Liquidity is still heavy and the MILA market has many big-name companies with very strong outlooks.”