BM&F Bovespa looks to Asia

22/03/2010 | Sid Verma

Brazilian exchange’s CFO hopes that listings by Asian corporates will help raise its profile as an international financial centre

BM&F Bovespa, the Brazilian securities, commodities and futures exchange, hopes that listings by Asian corporates will help raise its profile as an international financial centre, its chief financial officer Carlos Kawall has said.

Listings by local subsidiaries of Asian companies, principally commodity exporters, would give investors an opportunity to take positions on the firms’ equity valuation in the South American time-zone, Kawall told Emerging Markets in Cancun.

The Asia push is a “medium term goal, since there are many legal hurdles to overcome,” Kawall said. He would not be drawn on a timeline.

As a commodity producer, Brazil is chained to Asian business cycles. China’s economic rebound and voracious appetite for minerals and commodities have driven a market rally, since spring 2009. Energy and mineral-producing firms have a 43% weighting in the Brazilian index.

But some market participants are sceptical of the Asian focus. Ricardo Kaufman, head of the equity sales and trading at Bulltick Capital Partners, said: “More and more foreign companies in Latin America will list on the Brazil stock exchange due to its liquidity and infrastructure – but Asian firms are highly unlikely to follow suit.”

Kaufman told Emerging Markets that US exchanges’ unrivalled depth of liquidity, and low transaction costs – combined with products that allow investors to punt directly on commodity prices, such as commodity exchange-traded funds and derivatives – would provide stiff competition to a push towards Asia from Brazil.

Kawall’s bullish comments sit awkwardly with the softer risk appetite for Brazilian shares of late. BM&F Bovespa, the world’s third largest stock exchange by market capitalization, soared 83% in 2009, but investors fear the rally may run out of steam this year.

The exchange, created in 2008 with the integration between the Brazilian Mercantile & Futures Exchange (BM&F) and the São Paulo Stock Exchange (Bovespa), closed this week 5% lower from its early-January high amid fears of rising interest rates, lower commodity prices and weaker global risk appetite.

Renova, a renewable energy company in Sao Paulo, pulled an initial public offering on Thursday while a day earlier OSX Brasil, an oil-services company, downsized its initial public offer by 67% and JBS, the world’s biggest beef producer, postponed a secondary share offering.

But Kawall said investor wariness towards greenfield investments knocked the proposed equity sales of Renova and OSX Brasil.

“Clearly global risk appetite is skittish, but none of that is related to fears about Brazil,” he argued.

Kawall said that, although global capital flows would not return to the 2006-2007 bull run, Brazil’s 6% growth has – and would continue – to drive investor allocations to equities.

Kawall was speaking prior to the March 23 launch by BM&F Bovespa, the Federation of Brazilian banks (Febraban) and the mutual fund industry of a project to market Sao Paulo as an international financial hub and a gateway to Latin American capital markets.

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