Mexico City — Five years after its launch, Mexico’s Institutional Stock Index (BIVA) on the Mexican stock market (BMV) has not yet fulfilled its potential, according to analysts consulted by Bloomberg Línea.
“It is likely that in the medium term, at least in a period of five to 10 years, Mexico could have -if nearshoring is handled correctly- growth in the stock market and the BIVA would be well positioned,” Amín Vera, investment director at Invala Family Office, said
The strategist, who shared ranks with the current CEO, María Ariza, during her time at the Mexican Private Equity Association (Amexcap), acknowledged that the BIVA has reduced costs and processes to be able to go to market.
Latin America chief economist at Rankia, Humberto Calzada, agreed that the relocation of production chains to the north of the country as part of the nearshoring trend will be an element that will provide a “substantial advance” in the stock index’s growth.
“The issue of nearshoring is quite interesting. We will definitely continue to see bigger projects in the country for growth and development, but if these companies are accompanied by the stock exchanges to go to market, I believe that the next five years will see substantial progress,” Calzada said.
BIVA will have the task of promoting the theme of stock market financing, he added.
Five years after BIVA’s first share launch, the number of investment accounts has grown due to digiization in the wake of the Covid-19 pandemic. Prior to the arrival of BIVA, the National Banking and Securities Commission (CNBV) reported a total of 255,475 Mexican investor accounts.
The figure rose 271% during 2020 to 947,850 contracts, and currently exceeds five million investors where 92.2% of the total is covered by the GBM brokerage house, according to data from the Mexican regulator.
BIVA caused listing fees to decrease, according to Vera. One element that supports this is the dynamism shown by the stock index in the issuance of corporate debt.
“Costs went down due to competition (...) not only is it cheaper but the paperwork is simpler. It is easier for a company to list on BIVA than on the BMV,” he said.
Franklin Templeton’s vice president and CEO, Luis Gonzali, agreed that the arrival of BIVA generated more options for the market to list and seek better execution and conditions to reach the stock exchange.
“Although there have been a few issues, I think we could see very attractive things because of the new securities market law,” he said.
BIVA, together with other actors in the sector, promoted a reform that sought to reduce the costs and processes for going public in the capital and debt market.
Initially, BIVA had only 0.48% of the total Mexican local market. Five years after its inception, it now has 20% of the Mexican stock market share. This figure has been boosted by the entry into force of the so-called best practices reform, better known as piso parejo, or level playing field, which seeks to allow both exchanges to benefit by sending purchase orders for a better price.
The context of BIVA’s arrival to the Mexican market was complicated. In the past, the new center experienced the change of administration that triggered distrust among investors with the cancellation of the new Mexico City international airport, the Covid-19 pandemic and the effects generated by lockdowns, such as interruptions to supply chains.
In addition to the above, there is the structural problem of the Mexican stock market due to low valuations and low liquidity in the face of fewer local investors.
Vera recalled that prior to the entry of BIVA, companies such as food producer Sigma Alimentos and local low-cost carrier Viva Aerobus sought to debut on the local capital market; however, the valuations were not attractive and both IPO processes were halted.
The downside
An analyst who requested anonymity said that BIVA’s objective of bringing more companies to the market has not been achieved and, and claimed the reforms promoted by the stock exchange led by María Ariza have generated controversy since the objective is to increase the size of the market and not to generate a price war.
Vera said it also generated the cannibalization of companies.
“BIVA arrived at the time with the promise of ‘we are going to place more’ (...) there were issuers that moved from the Mexican Stock Exchange to the new stock index.”
He explained that the lack of IPOs will not be solved with the arrival of BIVA or more stock indices, but due to the structural problems of the Mexican stock market.
For his part, the BMV’s CEO, José-Oriol Bosch, said that the concern should not be to have more stock indices, but rather that the local market becomes smaller. He also mentioned that it is time to reflect on the first five years of the BIVA’s operations.