LATIN AMERICA-ECONOMY: Stability Boosts Stock Exchanges

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Jun 4 1997 (IPS) - The economic stability felt lately in Latin America gave a big boost to the region’s seven main stock markets – Brazil, Mexico, Chile, Argentina, Peru, Venezuela and Colombia, by order of size – in May, which capped the positive performance seen so far this year.

The greatest euphoria was experienced in Peru, where trading rose 21 percent, while the total traded in the first five months of the year was 49 percent higher than in the same period last year, according to a report revealed to IPS in Caracas. A total of 348 million dollars were traded on the Lima index in May.

Juan Andres Rodriguez, director of Softline Consultants, which has an electronic system that analyses Latin America’s seven so- called emerging stock markets, said the Lima index was pulled up by the renewed attraction of the mining companies. Mining sector shares were the most representative of the Lima stock exchange, the region’s fifth largest, he added.

In the region’s leading stock market, that of Sao Paulo in Brazil, 11.6 billion dollars were traded in May, 13.6 percent up on April, bringing accumulated growth in 1997 to slightly over 61 percent.

A total of just over 16 billion dollars was traded on the seven stock exchanges in May, the highest volume registered so far this year, up from April’s close to 15 billion.

According to Rodriguez, the positive performance was based on “non-harmful conditions and neutral perspectives” – in other words, a stable and promising economic outlook.

The director of Softline said the common factor of that positive performance was the success of sustained government efforts to keep down inflation – which had its weakpoint once more in Venezuela in May, where prices rose 3.1 percent.

The stability on an international level also helped, especially on the New York stock exchange, where the top local shares of markets such as those of Brazil and Argentina have high prices, meaning the Dow Jones index has something of a “mirror effect” on regional markets.

Mexico, Latin America’s second leading stock exchange, registered 2.7 billion dollars in trading in May, representing a 4.7 percent increase, and putting this year’s accumulated growth at just above 17 percent.

Nevertheless, the market experiencing the most tension due to the country’s economic situation, still shaky after the late 1994 crash of the peso and ensuing crisis, is precisely that of Mexico, said Rodriguez.

In Chile, 645 million dollars were traded, 5.9 percent more than in April, bringing the total accumulated growth in 1997 to 19.8 percent.

The region’s sixth largest stock market, the Caracas index, moved 222 million dollars, with a 9 percent rise with respect to April, and an accumulated rise this year of a mere 2.4 percent.

On the seventh stock exchange, that of Bogota, 81 million dollars were traded, representing an increase of 5.6 percent, and an accumulated rise in 1997 of 43.7 percent.

Rodriguez blamed the low growth of the Caracas stock exchange in the January-May period on the effects of the change of hands of several of the companies on the local index, more than on a lack of investor confidence.

Not only in Venezuela but in several other Latin American indexes the prices of the most representative stock are out-of- date or distorted by changes in the listed companies, he added, citing the example of the Provincial Bank, Venezuela’s largest, which since March has been almost totally in the hands of Spain’s Bilbao-Vizcaya Bank.

The buyer plans to hold onto the shares for a time, meaning that although the stock is still listed it has stopped moving, leading to a partial distortion of the index.

Privatisation processes have also led to a concentration of companies that previously had an active presence on the stock markets, but which continue to mark the performance of their respective indexes.

A consultant on questions of privatisation to the government of Brazil, David Moreira, told IPS in Caracas that in 1998, his country intended to sell the telecommunications company Telebras, which moved 6.5 billion dollars on the Sao Paulo stock market in May.

Moreira said the government hoped to take in some 30 billion dollars from the sale, but that the group which will acquire it will completely – or almost completely – stop trading, a move that will have a decisive impact on the Brazilian stock exhcange if the index is not modified.

The question of updating the indexes of the representative stocks in each market will soon have to be tackled by the emerging markets which are most attractive at an international level, according to Rodriguez.

Electricity and telecommunications firms traded the greatest volume in May, with the classic exceptions of Argentina and Colombia, the Softline report states.

Following Telebras in Brazil were Telefonos of Mexico with 399 million dollars traded, the Chilean electricity company Endesa with 168 million, Electricidad of Caracas (89 million), Telefonos of Peru (49), the Argentine steelworks Acindar (34) and the Bank of Bogota (13).