T H E R O L E O F C A P I T A L M A R K E T S I N B R A Z I L. Roberto Teixeira da Costa New York, July 26, 2011. Before the sixties, Capital Markets were practically inexistent in Brazil :. Small rate of savings Commercial banks offered checking account with nominal interest
Roberto Teixeira da Costa
New York, July 26, 2011
In the fifties, DELTEC and IBEC (Rockfeller family), both created by American businessmen, pioneered in creating a distribution system to sell equity securities and mutual funds throughout Brazil on a door-to-door basis. That lasted till the beginning of the sixties. The surge of fixed income securities in the financial markets, associated to the lack of motivation of corporations to go public, made such pioneer efforts to change their focus and to adapt to a new environment where fixed income securities started to prevail.From that moment on, inflation became a factor for investors in the early sixties. Protection against currency devaluation gradually started to be searched including buying foreign currencies.
A big effort to foster Capital Market developments was introduced in 1964/65, with deep reforms in the financial markets through specific legislation. That was one of the many measures enforced by the militar regime
THE NEW PHASE : implication of being a listed company.
In 1976, a new Government considered the Capital Market as an instrument essential for economic and social development, approved a reform to attack the 4 leading aspects identified as main factors that caused the crisis of 1971.
FROM 1976/77 build strong support for the market to operate. It was made crystal clear that one of the reasons of the market rupture before and after the crisis was the inexistence of institutional investing that could operate on a contra cyclical basis. One of the major initiatives within this segment of Institutional Investors was the regulation of Pension Funds (since a few, such as Banco do Brasil - Previ, already existed, without any legal framework to protect insured participants), which were obliged to invest a minimum of 20% of their assets in equities (1978)
TILL THE NEW CENTURY
35 YEARS ELAPSED
Evolution of IPOs liquidity and more protection to minority shareholders (see enclosed).
Corporate governance as the norm for local companies
Participation of Listing Segments at the Exchange (2010)
IPOs by Listing Segment*
• 35% of total listed companies
• 66% ofmarketcapitalization
• 80% of traded value
Source: BM&FBOVESPA. (*)Data from 2004 to 2010.
24 public offerings in 2009 (6 IPOs and 18 Follow-On), raised BRL 46.0 bi
22 public offerings in 2010 (11 IPOs and 11 Follow-On), raised BRL 69 billion
Recent capital raising activity
Public Offerings in 2009/2010
Inicial raised BRL 46.0 biPublicOfferings
Capital raising activities – Equities
(December 2010 - US$ millions)
Source: World Federation of Exchange (WFE). ¹ Members of Emerging Markets Committee - IOSCO.
BM&FBOVESPA raised BRL 46.0 bi:
an important Global Player
Largest stock and derivatives exchange in Latin America
4th largest listed exchange in the world – UD$ 15,5 billion (Apr/27/11)
IMPORTANT CAPITAL MARKET
The world’s 1st largest equity option markets (Mar/2011)*
World’s 4th largest market in terms of capital raising activities (Mar/2011)*
Ranked among the world’s top 6 derivatives exchanges (2010)**
Number of listed companies: 465 (mar-11)
Market capitalization of the listed companies: R$ 2,5 trillion (USD 1,5 trillion)
Source: * WFE and IOMA; ** FIA
Novo Mercado creation: reflecting the best corporate governance practices and assuring essential rights to the investors
Non-resident Investor: improvement of the regulations (Resolution 2.689/2000) and increase in the promotion of the Brazilian market abroad (BEST)
Institutional alliance to generate incentives
Investment Banks: self-regulation code – exclusive ANBIMA signet for offerings made by companies listed at least in Level 1 (Nível 1)
Pension Funds: Resolution 2829/2001 – higher allocation limit for shares listed in Novo Mercado, Level 1 and Level 2
BNDES: possibility of invested companies making their IPO in the Novo Mercado
Macro economic context: currency stability
Market Anomaly in the 90’s
There is a great gap in the comparison of the financial volume traded in the share market by individual investors in 2010 . In Brazil they were responsible for 26,4% while in Korea represented 84,7%
IBOVESPA Evolution Volume
(Dec 00 – May 11)
Stock Exchange Comparison Volume
(000.000 of US $- 2005 – Jun 2011)
Stock Exchange Comparison Volume
(000.000 of US $- Jan 2011 – Jun 2011)
(Dec 05 – Apr 11)
Capital Markets in Brazil
The Regulatory and Surveillance Authority (CVM) is complemented by the:
Low savings ratio to GDP progress in terms of convergence to international standards (IFRS).
Source: IMF - 2010