Brazil’s emergence on the world economic stage over the last decade has delivered increased investment and foreign trade to the country’s economy. BM&FBOVESPA (BVMF), Brazil’s leading financial exchange, is the place where much of that growth can be measured. Its benchmark iBovespa stock index has increased more than 500 percent since 2002. Though some of the country’s growth has slowed lately, there are signs of continued interest in Brazil’s economy and its top exchange. For example, U.S.-based market participants will soon be able to trade iBovespa futures — the result of a cross-listing agreement with CME Group. As CEO of BVMF, Edemir Pinto has his finger on the pulse of Brazil’s markets more than just about anyone. In a recent conversation, we asked him about future growth for the exchange as well as Brazil’s economy.
In 2008 while the U.S. and Europe were enduring a financial crisis, BVMF saw records in equities trading. Many people see that as one of the first clear markers of Brazil’s emergence in the global economy. What are the factors that led to that growth in trading volume?
Today Brazil has a solid economy, a well-structured and regulated capital market and lots of companies presenting good results and potential for growth. All of this has helped the country remain attractive to investors, especially foreigners. In this context our capital market is one of the most important sources of funds for companies and for the development of the Brazilian economy in the coming years, despite the crisis.
This year, Brazil is expected to see 1.7 percent growth after experiencing 7.5 percent growth just two years ago. What is the role of capital markets in helping the country get back to that level of growth?
The crisis has contributed towards a reduction in foreign investment in the Brazilian capital market, making IPOs unviable for several companies, which are waiting for a more favorable moment. This is also reflected in the number of individual investors, as there has been a temporary reduction. However, we can see that large projects in the future, such as the World Cup and the Olympic Games, will require major infrastructure investment. The Exchange and the capital market as a whole are willing to finance the projects aimed at these two events. We can also envision the Exchange leveraging the growth projects of products and services companies that are focusing on the ascendance of class C in Brazil. Furthermore, we believe companies will debut on BOVESPA Mais, a segment that permits smaller offers or listings alone, enabling the company to initiate market exposure.
Bill Clinton recently said he would “bet on Brazil first” compared to other growing economies. He cited policy framework and natural resources as reasons, but are you seeing evidence in capital markets of renewed growth?
As well as the natural wealth that is admired by all of those know Brazil a little, we are proud to say that our regulatory framework is among the most advanced in the world. In the view of BM&FBOVESPA there has undeniably been a continuous advance in the development of the corporate governance culture in Brazil, stemming from Exchange’s differentiated listing segments such as the Novo Mercado.
BM&FBOVESPA is perhaps most recognized for its benchmark index business, but your exchange trades a wide range of asset classes. Under which asset class do you see the most potential for growth in the near future?
The demand for international products on the domestic market should grow in the coming years on BM&FBOVESPA. The expectation is that products such as Brazilian Depositary Receipts (BDRs) and international stock indices (access to the S&P500 futures contract in particular) will be in heavy demand from retail and institutional investors seeking opportunities to diversify investments in the international market. They will enjoy easy execution of the entire trading, settlement and custody process at BM&FBOVESPA.
With the U.S. enduring severe drought in its grain belt, Brazilian agriculture seems poised to play a bigger role in global exports. Have you seen this reflected in your markets?
Yes, via two trends. In the short term we have observed that volatility in the international grains market has been transmitted to our commodity derivatives market which has created a greater need for agribusiness participants to seek instruments for protection. In regard to the growth of the national economy as a whole, we have identified that Brazil’s greater participation in the global context of agricultural commodities has had a positive influence on the development of agribusiness companies, some of which are listed on BM&FBOVESPA.
You announced an agreement earlier this year with CME Group to trade S&P 500 futures. Can you give us an update on where that stands? And what are the advantages of this agreement for market users in Brazil?
We have IBOVESPA, the main indicator of the average performance of the Brazilian stock market, which is listed on CME and cleared by CME Clearing as a dollar-denominated futures contract. By the end of the year BM&FBOVESPA will launch, settled in Reals, dollar-denominated futures contracts based on the S&P 500 Index, CBOT listed mini-sized soybean contracts and NYMEX listed oil (WTI). The S&P 500 Index will be provided by BM&FBOVESPA through sublicensing by CME Group and the S&P Indices company, which is one of the world’s main compliers of indexes, under the exclusive global licensing of CME Group. The cross-listing agreement will allow far easier local access to the main international products, with little or no extra investment, permitting better risk management and reduced costs.
There’s a lot of discussion about the interconnectedness of the global economy. Do you see partnerships between exchanges as the primary way businesses will invest and manage risk across borders?
Yes, we don’t see major cross-border consolidation of exchanges, but rather strategic partnership such as the standing one between CME and BVMF.