Colombia bourse aims to double foreign investment

Colombia seeks to double the volume of foreign investment in its stock market within four years and attract new interest to the corporate bond market in a bid to raise the Andean nation's profile and boost liquidity, according to the head of the stock exchange.
A strong financial regulatory environment as well as major improvements to Colombia's security and three investment-grade ratings has helped attract record foreign direct investment and cash to its stock and bond markets in recent years. "We are explicitly working to improve conditions so that more foreign investors enter the local market," bourse chief Juan Pablo Cordoba told Reuters in an interview at the stock exchange in the financial center of Bogota. "We want to increase the level of internationalisation ... all our efforts aim to improve conditions of market access."
Integration with other Latin American bourses - known as MILA - is also raising Colombia's international profile and helping attract foreign brokerages to the country, making its markets more mature, Cordoba said. Colombia's stock market integrated with those of Chile and Peru last year to form MILA, which allows cross-border electronic trading in the companies listed in the three exchanges.
Colombia aims to increase to 15 percent the participation of international investors in the nation's stock market by 2015, up from the 7.5 percent share in 2011 of a market that totalled 68 trillion pesos ($3.7 billion), Cordoba said. Stock market volume has soared from 1.37 trillion pesos in 2002, when former President Alvaro Uribe took office and launched a heavy military offensive against drug-funded insurgents who back then controlled much of Colombia's resource-rich mountains.
"The challenge to increase foreign investors is to bring big names, but getting them to issue shares is tough," said Juan Pablo Galan, at brokerage Corredores Asociados. MILA, Latin America's second-biggest exchange after Brazil's, may be joined by Mexico next year if legal and regulatory frameworks can be agreed within Mexico, Cordoba said. MILA already has more than 546 listed companies with combined market capitalisation of $599 billion and traded volumes last year of $100 billion.
"We will know by mid-year whether it's possible or not," Cordoba said of Mexico's integration with MILA. "We could easily have 100 or 120 companies with liquidity of more than $1 million a day, and be trading more than a $1 billion a day. It would be a very interesting market and very attractive."
Among Mexican companies that could be part of the integration is Bimbo, the world's biggest breadmaker; America Movil, the wireless carrier controlled by billionaire Carlos Slim; and Coca-Cola Femsa, Latin America's biggest Coca-Cola bottler. Colombian companies issued as much as $7 billion in shares last year in eight initial public offerings. Cordoba expects a similar number of IPOs this year but the dollar figure will likely be lower, he said.
He also pointed to expected growth in the bond market. Another $5 billion in corporate bond sales is estimated this year, slightly higher than 2011 at $4 billion, he said. "Last year's balance was extraordinary," said Cordoba. "What's important (this year) is that the dynamic has been generated, all that we have been sowing is beginning to bear fruit, and the Colombian companies, as well as some from other countries in the region, are seeing Colombian markets as attractive to list in and raise capital."
As Colombia's trading volumes increase, Cordoba hopes more investors will use direct market access, which would allow them to deal directly with the "book" of buy and sell offers on an exchange's computer. It may take as long as two years until clients are fully using DMA, he said.
"We have connectivity but the clients aren't connected," Cordoba said. "We have to keep building liquidity to increase international interest ... Once there's enough liquidity there will be DMA connections, not just one, but many will connect." A decade ago, Colombia was considered too risky for many investors, as Marxist rebels and right-wing paramilitaries battled for control of the nation's lucrative cocaine industry, kidnapping company executives and massacring rural residents.
A US-funded offensive against insurgents has helped reduce the violence that's plagued Colombia for five decades, cutting homicides by 46 percent and kidnapping by 90 percent between 2002 and 2010. The security improvements helped draw almost $15 billion in foreign direct investment into the country last year, mostly into the oil and mining industries.
"Security is a basic condition for business and one of the principal consequences that we have a safer environment is that companies can think long term," Cordoba said. "When you have security problems, companies think about surviving the year, no one is thinking of 10-year investments, no one is thinking of expansion plans of putting money in the business."
The move earlier this week by Colombia's central bank to raise its benchmark interest rate to 5 percent will likely help attract more investment, given that rates in developed markets like Europe, Japan and the United States are near zero. Colombia's peso, which has already gained 7.1 percent this year, could strengthen further as capital is drawn to the country.
Colombia has said it will seek to avoid capital controls to ease gains in the peso, something Cordoba agrees with. He said he has discussed with the government that if for any reason controls are imposed, the share market will be excluded. "There's nothing a small country like Colombia can do to combat zero interest rates in the three principal financial world markets," Cordoba said. "Capital controls aren't desirable or adequate."