Brazilian Stocks Do the Mambo
| SAO PAULO, BRAZIL
HIDDEN inside an old building nestled in the cobblestone walkways of this city's financial center, the Sao Paulo stock exchange is throbbing with noise and activity. Men with portable phones hung on wires over their shoulders buzz across the littered floor. In one corner, a clump of buyers and sellers shout at each other, negotiating shares in Telebras, the state telecommunications monopoly that is Brazil's hottest stock.
"Watch the index, get out high, and come in low," says Donato Petraglia, an unemployed bank worker observing the scene. Following this age-old dictum of stock markets everywhere, he has made a bundle, mostly on Banespa, the Sao Paulo state bank. "It went up more than 600 percent in six months!" he exults. Bullish stock markets
The Sao Paulo exchange is just one of a growing number of bullish stock markets in Latin America. As part of a general trend of market-oriented policies to stabilize economies, many governments are moving to deregulate and fortify securities markets. In the process, they are opening them up to foreign investors.
"People are looking at Latin America now the way they were looking at Asia in the 1980s," says Mario Lobo, executive director of Celsius, an investment banking firm in Santiago, Chile, associated with the New York-based Salomon Bros. "They are old Asia hands, who compare Latin America with Korea, with Turkey and Portugal."
Shares that draw the most interest are often telecommunications companies, an area which many governments are selling off to the private sector. Growth potential for this industry is great in Latin America, where telecommunications networks have long trailed consumer demand. Customers wait years for a phone line, and put up with terrible service when they get one. Other popular stocks include petrochemicals, energy and other utilities, banking, and agribusiness.
Last year, a broad-based stock market index in Chile rose 91.6 percent in dollar terms, while blue-chip stocks shot up by 139.6 percent. On March 27, the index hit an all-time high, with a year-to-date gain of 21.7 percent in nominal terms. Daily trading volumes have risen from $1 million three years ago, to about $10 million last September and $20 million today. Market capitalization now totals $37.2 billion.
The growth is much due to the success of an economic stabilization program begun in 1986 under the military regime of Gen. Augusto Pinochet Ugarte and continued by his civilian successor, Patricio Aylwin. The program took many state-owned companies public. Chile's state social security system was turned into a series of privately owned pension funds that must invest in shares. This year, Chile's economy is expected to grow 6 or 7 percent, unemployment is at a record low, and inflation is under 1.2 percen t. Exchange seats expensive
"The last seat sold on the stock exchange [in March] went for $1.3 million," says Nicolas Billikopf, an analyst at Celsius. "That's three to four times what it [a seat] costs in New York!"
Argentina has also seen its market respond quickly to policy changes. In the first six months of last year, daily trading volume averaged around $3.5 million. Today it is about $45 million to $50 million. "We took over the securities commission July 31, and all the changes have been implemented in the last months," says Martin Redrado, chairman of Chile's National Securities Commission. Mr. Redrado's team has deregulated the market, removed capital gains taxes, and instituted rules on insider trading.
Last year, the Argentine stock index rose 370 percent in dollar terms. It went up 15 percent in the first quarter of this year. In Argentina, unlike Brazil and Chile, foreigners may make direct investments in the stock market, instead of operating via a listed equity fund. According to Redrado, foreigners hold about 8 percent of the $20 billion market.
Brazil's stock market is much larger than its neighbors, since its economy is bigger, with a gross national product of about $350 billion. The Sao Paulo stock exchange, which accounts for three-quarters of the country's cash stock market, handles a volume of $100 million a day. Foreign interest has grown in response to rules changes.
Brazil, like other Latin American markets, must change centuries-old traditions to galvanize investment. Business is dominated by families who resist relinquishing control to shareholders. "The businessman has to be aware of the responsibility he has to shareholders," says Alvaro Augusto Vidigal, president of Brazil's exchange. For these countries, the stock market is more than a supplier of capital. It is also a prime indicator of economic health, and of standing in global markets. "What comes into Braz il [with investment] is credibility," says Mr. Vidigal. "This is oxygen for our country."