Delisting

Mexican stock markets are struggling to attract and retain listings

The Mexican Stock Exchange (“BMV”) is the second largest stock exchange in Latin America after São Paulo’s B3 in Brazil. However, the BMV has been going through a severe crisis for at least five years which is now driving many companies to start the process of de-listing from the exchange.

A former senior executive of the BMV commented, “The current crisis has its root in a loss of confidence following the 2008 financial crisis where the only winners were the banks. This has given the impression of a ‘casino economy’ on the public markets.”

Sanborns, the retailing arm of Grupo Carso, controlled by Carlos Slim, was the latest company to announce its departure from BMV. Citigroup was the first company to exit BMV in 2019 and it was followed over the last two years by IE Nova, Bio Pappel, General de Seguros and Maxcom Telecomunicaciones.

The main reasons for this exodus are poor stock market returns, very modest GDP growth and Mexico’s structural economic issues that hinder international investment. In addition, foreign owners of financial institutions opt to keep control over their businesses while family-controlled groups prefer private ownership to avoid attracting attention from organised crime.

Faced with the stock market and confidence crisis in Mexico, the total value of the companies currently listed hardly exceeds 50% of the country’s GDP. Meanwhile, Brazil and Chile’s stock market values are 80% and 90% of GDP.

The former executive continued to explore reasons for the apparent decline of interest in the Mexican stock market, “It is a little hard to believe, but the dynamic of many medium and large companies in Mexico is that they are very regional and family-owned companies that are not interested in capitalising on their opportunities to go for more. Another reason is that one person owns more than a third of the stock market: Carlos Slim. What Slim does or does not do is a matter of national security for Mexico and in the stock market it has an impact on confidence. In other markets, such a dangerous concentration of power would be impossible.”

“It is a little hard to believe, but the dynamic of many medium and large companies in Mexico is that they are very regional and family-owned companies that are not interested in capitalising on their opportunities to go for more.”

Former senior executive of the BMV, Mexico

The underwhelming performance of BMV since 2017 appears to have reached a nadir over the last year, in the aftermath of the Covid-19 pandemic effects and the lack of tax incentives from president Andrés Manuel López Obrador’s administration. Six companies have already de-listed from BMV from the 15 that applied to leave the stock exchange.

Stock exchange experts argue that government and regulators should work together to promote the use of formal financial services, attract foreign investment and incentivise savings. Notably, the lack of investment is one of the main triggers for the current wave of de-listings, as companies show low levels of trading.

Although the government does not hold an official position regarding the BMV crisis, local Mexican media report that the administration sees it as a combination of external factors including global inflation, geopolitical instability and weak post-pandemic economic recovery; and internal components, mostly intrinsic peculiarities to each de-listing decision.

The former stock exchange executive suggested that much more needs to be done, “If there is no technological and digital investment, if the market does not pay real multiples to companies and if it does not operate incentives from more and better operators, the Stock Exchange runs the risk of being a passive actor in the Mexican economy.”

“If there is no technological and digital investment, if the market does not pay real multiples to companies and if it does not operate incentives from more and better operators, the Stock Exchange runs the risk of being a passive actor in the Mexican economy.”

Former senior executive of the BMV, Mexico

The executive summarised, “The outlook is not encouraging, especially when the Ministry of Finance and the regulatory body have two key problems: a lack of political interest in the subject and a lack of professional and technical staff in the National Banking and Securities Commission.”

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