In good company
Chile’s main stock exchange, the Bolsa de Comercio de Santiago, has performed well over the past decade. It relies more on bonds and debt instruments than on a less-active equity market.
For trading in stocks, bonds, currencies and other financial instruments, Chilean investors and institutions turn mostly to the Bolsa de Comercio de Santiago (BCS), the stock exchange. Founded in 1893, the Santiago Stock Exchange is hosted in a venerable old building, and boasts a beautiful trading floor, where the high-tech digital displays vie for attention with marble floors, wood paneling, and stuccoed walls.
For traders wanting a complete electronic alternative, Chile offers the Bolsa Eletronica de Chile (Chilean Electronic Exchange).
At the creation of the BCS in 1893, fifty companies register for trading. Twenty years later, the BCS construction of the actual building started, and the mural by artist Pedro Subercaseaux was completed in 1917.
In 1958, the IGPA index was launched, followed in 1977 by the more selective IPSA index.
In 1981, two events of importance occurred. The first was the introduction of computers in the back office and the trading systems. The second had a strong indirect effect: the creation of privately-owned pension fund administrators (to handle the obligatory social security system), which were to become the largest institutional investors and users of the BCS.
As of 1984, another growth driver was the government privatization process, which favored new listings on the BCS. The year 1990 saw further expansion of activities, namely dollar currency trading, and futures contracts.
In 2010, sights have been set on greater integration with exchanges in Peru and Colombia, through the MILA, Latin America Integrated Market.
Proof the value of the BCS? The fact that one of its licenses (enabling trading) sold for about $4 million in 2008.
The Santiago stock exchange has seen healthy growth rates over the past years, even weathering the 2008 financial crisis with serenity. In 2008, the stock exchange managed to grow by 3.1% (in terms of traded value) over the prior year, whilst the rest of the world was licking its financial wounds.
For its activity, the stock exchange relies less on equity trading (i.e. company shares), and more on bonds and monetary instruments. “Equities represented only 7% of the value traded in 2010,” explains Pablo Valdes, the chairman of the Santiago Bolsa de Comercio in the exchange’s annual report. “Whilst 51% of the trading was in money market (add explanation), and 27% in fixed income instruments.”
The Santiago stock exchange presents a mixed picture in terms of performance. Even though the number of listed companies has been in slight decline, the market capitalization has increased dramatically – over three-fold to represent almost $350 million in 2010.
As for the number of companies listed, it stood at about 230 in 2010, a slight drop from the 2001 tally of 250 companies. In fact, the stock exchange typically only sees only one or two IPOs each year. 2005 was a banner crop, with five companies listed capturing $500 million in fresh capital. In 2010, the single listing generated new capital of almost $200 million for the new market entrant.
Although the IPO market is limited, the stock exchange is oft-used by existing listed members to raise fresh capital for ongoing expansion projects. In 2010, the listed companies raised a total of $3.5 billion in fresh money via bonds and other issues.
The activity of the stock exchange closely reflects the economic make-up of the country, with commodity companies being the most active members, representing about 27% of the free floating trading. Utilities and retail are the next most active, also with about 25% each. Industrial goods and FMCG only represent 12% and 5% respectively.
To bolster its growth and regional position, the Bolsa Comercio has extended to operators beyond the 230 listed companies. There are 60 approved issuers for the money market instruments, and 143 issuers for the fixed income market. These players include not just famous banking names (e.g. Santander or Banco Chile), but also blue-chip industrial operators, such as Coca-Cola or highway operating companies. There are also 118 issuers in the offshore market, specializing in foreign currency denominated instruments.