Latin American Capital Markets:

Transcription

1 Latin American Capital Markets: Stylized Facts, Recent Developments, and Issues FEDERAL RESERVE BANK OF NEW YORK October 18, 2007 Augusto de la Torre The World Bank

2 Structure of presentation Medium-term trends: parece que estamos mal But significant signs of hope are emerging: pero vamos en buen camino Selected issues De la Torre, A. and S. Schmukler, Emerging Capital Markets and Globalization: Challenges for Developing Countries Stanford University Press and The World Bank, 2006 ( 2

3 Medium Term Trends Parece que estamos mal

4 Latin financial systems are comparatively small, given p.c. income, and macro & institutional fundamentals Percent of GDP, Financial Sector Size Across Countries U.S. U.K. Japan Thailand Malyasia Hong Kong Peru Mexico Colombia Chile Brazil Argentina Credit to the Private Sector by Financial Intermediaries Stock Market Capitalization Amount Oustanding of Domestic Private Sector Bonds Source: BIS, S&P Global Stock Markets Factbook, World Bank. 4

5 Stock market cap lags but has been picking up Percent of GDP 180% Market Capitalization / GDP 160% 140% 120% 100% 80% East Asia 153.1% 97.5% 60% 40% 20% G-7 Latin America 45.6% 0% Source: S&P Global Stock Market Factbook 5

6 140% 120% 100% 80% 60% 40% 20% 0% 106.3% 99.3% 8.2% Latin stock markets are highly illiquid Percent of GDP Value Traded / GDP East Asia G-7 Latin America Source: S&P Global Stock Market Factbook

7 and shrinking in terms of listings 600 Number of Firms Listed in Domestic Stock Exchanges in Latin America Argentina Brazil Chile Colombia Mexico Peru Venezuela Source: S&P Global Stock Markets Factbook 7

8 Private sector bond markets trail behind Percent of GDP 60% Domestic Private Sector Bonds Outstanding 50% G-7 47% 40% 36% 30% East Asia 20% 10% Latin America 11% 10% 0% Source: BIS, World Bank 8

9 But corporate bond markets relatively small in general Domestic bonds as a share of GDP, simple average 140% 120% 100% 80% 60% Corporate issuers Financial institutions Governments 40% 20% 0% Latin America East Asia Advanced Economies 9

10 140% 120% 100% 80% 60% 40% 20% 0% Bank credit has not compensated Percent of GDP Credit to the Private Sector by Financial Institutions G-7 East Asia Latin America Source: World Bank 126% 76% 25%

11 despite a vigorous pick up in credit growth Latin America: Real Growth in Bank Credit to the Private Sector simple average, annual basis Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Countries: Argentina, Bolivia, Chile, Colombia, Costa Rica, Ecuador, El Salvador, México, Perú. Real Growth: Nominal credit deflated by CPI. Source: IMF International Financial Statistics. 11

12 Disappointing outcomes stand in contrast with aggressive liberalization 3.0 More liberalization 2.5 G-7 Rest of Western Europe Southeast Asia 2.0 Latin America 1.5 Less 1.0 liberalization The liberalization index is calculated as the simple average of three indices (liberalization of the capital account, domestic financial sector, and stock market) that range between 1 and 3, where 1 means no liberalization and 3 means full liberalization. These data are then aggregated as the simple average between countries of each region. Source: Whither Latin American Capital Markets?,

13 and intense capital markets-related related reforms Percentage of Latin American Countries Having Implemented Reforms 120% 100% 88% 94% 91% 100% 92% 80% 60% 56% 63% 64% 62% 40% 31% 25% 27% 33% 20% 15% 0% Supervisory Agency Creation Establishment of Insider Trading Laws Custody Arrengements Trading Systems 0% Clearing and Settlement Processes Before 1990 By 1995 By 2002 Source: Whither Latin American Capital Markets?,

14 Hopeful Signs pero vamos en buen camino

15 Local corporate bond markets are taking off in some countries like Chile Chile: Oustanding Corporate Debt Securities (Billions Dollars) Domestic International Source: Bank for International Settlements 15

16 Mexico Mexico: Oustanding Corporate Debt Securities (Billions Dollars) Domestic International Source: Bank for International Settlements 16

17 and, to a much lesser extent, Colombia Colombia: Outstanding Corporate Debt Securities (Billions Dollars) Domestic International Source: Bank for International Settlements 17

18 Significant IPO activity in Brazil Total Amount Raised (in millions) and Relative Importance BOVESPA Stock Exchange % 1.00% % 0.38% US$B 11.7 US$B 6.1 US$B 1.7 US$B Total Amount Raised (in US$) Total Amount Raised/Market Capitalization Source: BOVESPA 18

19 where listings are finally on the rise Number of Listed Companies in Brazil Source: EMDB

20 although de-listings continue Number of IPOs BOVESPA Stock Exchange Number of IPOs Number of Delistings Source: BOVESPA 20

21 The share of domestic public debt has risen Composition of Public Debt in Emerging Latin American Countries Domestic debt External due to private creditors External due to official creditors Source: Authors' calculations based on CLYPS (2006). Note: Countries included are Argentina, Brazil, Chile, Colombia, Ecuador, El Salvador, Mexico, Panama, Peru, Uruguay, and Venezuela

22 as has the share of domestic private bonds Percent of GDP 80% Domestic Private Sector Bonds Outstanding 70% 60% External Debt Foreign Currency Domestic Debt Indexed Domestic Debt Domestic Currency Domestic Debt Foreign Currency External Debt Domestic Currency 50% 40% 30% 20% 10% 0% Countries included: Argentina, Brazil, Chile, Colombia, Mexico, Panama, Uruguay and Venezuela Source: BIS, World Bank 22

23 Most domestic public debt is now in local currency or indexed to the CPI Currency Composition of Domestic Public Debt, 2004 Bahamas Barbados Nicaragua Venezuela Honduras Mexico Brazil Jamaica Colombia Peru Costa Rica Chile Uruguay Argentina Bolivia 0% 20% 40% 60% 80% 100% Source: Cowan et al. (2006). Foreign currency Indexed to prices Domestic currency 23

24 The maturity of domestic public debt has lengthened East Asia Maturity Composition of Domestic Public Debt, 2004 Advanced economies Eastern Europe Chile Nicaragua Argentina Colombia Mexico Barbados Uruguay Brazil Peru 0% 20% 40% 60% 80% 100% Short term Long term Sources:Bank for International Settlements (BIS) and Cowan et al. 24

25 Securitization is taking off Total issuance in 2006 was approximately $20 billion, about 90% of which was domestic Source: FitchRatings 25

26 Local markets are supported by institutional investor funds, although mostly at the margin Pension fund assets under management in emerging markets (USD bn) LatAm Asia Europe ,200 1, Mutual fund assets under management in emerging markets (USD bn) LatAm Asia Europe

27 Selected Issues

28 Stock market: size and internationalization Beyond governance and shareholder rights Internationalization Reforms boost internationalization relative to local market activity Internationalization, in turn, undercuts local stock market liquidity Internationalization does not generate balance sheet vulnerability Size matters Size of market network & agglomeration effects; pools of funds Size of issues liquidity Relatively few assets needed to achieve diversification benefits A light version of equity markets for small countries? Regional integration superior to global integration? 28

29 Internationalized Firms Gaining Importance Market Cap of Internationalized Firms / Total Stock Market Capitalization Value Traded Abroad / Value Traded Domestically 75% 140% 60% 64.0% 120% 122.4% 100% 45% 43.1% 80% 30% 28.6% 32.6% 60% 40% 15% 0% 3.5% Latin American Countries 8.1% G-7 Countries East Asian Countries 20% 0% 0.7% 0.2% Latin American Countries 3.4% 4.0% 0.2% G-7 Countries East Asian Countries Source: Whither Latin American Capital Markets? (2004)

30 Bond markets Is the shift to domestic markets by governments crowding in the private sector? Is the reduction in mismatches a durable trend? Is the bond market only for the large enterprises? Do banks move down market in the absence of competition from bond markets? Will reform seize the current opportunity of abundant liquidity in search of Latin credit assets? 30

31 Only large companies access bond markets in Chile Chile Corporate Bond Issues in the Local Market by Firm Size (Cumulative Issues for ) 7% 0% 0% 0% Mega Large Medium Small Micro 93% Mega firms are defined as those with annual sales net of VAT above UF600,000 (US$17.2 million); large firms have sales between UF100,000 (US$2.8 million) and UF600,000; medium firms have sales between UF25,000 (US$0.7 million) and UF100,000; small firms have sales between UF2,400 (US$68,688) and UF25,000 and micro firms have sales below UF2,400. Micro firms represent around 82 percent of all firms, while small firms are 15 percent and medium firms two percent. Large and mega firms combined account for only one percent of all firms. Source: World Bank (2004) 31

32 Thank you 32