Julio Macchi, President of Buenos Aires stock exchange, describes a thriving capital market
Why go to a Latin American Stock Exchange when you could go to New York or London?
Aware that globalisation has erupted into the world, the Argentine market decided to become an active participant world-wide and has launched a series of deep internal transformations which are beginning to be interpreted and appreciated by foreign investors as more than mere signs.
Thus, in the last few years the Argentine stock market system has developed a number of mechanisms and procedures aiming to build a more reliable market - that is, to enhance market quality.
Argentina has significant comparative and competitive advantages, which we believe can make a foreign investor choose our local market. We have a very favourable regime to encourage foreign investment in Argentina, where locals and foreigners are treated equally and where capital inflow and outflow as well as profit remittance are completely free.
There are no exchange controls, entry quotas nor minimum waiting periods for foreign investment. This free legal scheme is enhanced by tax advantages. Foreign investment is exempt from capital income tax on exchange transactions. Stock dividends and returns on bonds are not taxed for foreign investors, just as they are not taxed for local retail investors.
Other advantages of trading in the local market include sensitivity shown by investment advisors, analysts and mainly local brokers, vis à vis unexpected changes in market conditions or expectations, plus low trading costs. We believe that such an environment is highly favourable for investment in our market.
Besides, the Argentine market has experienced significant growth in 1996, which has been reflected in market turnover. The 1995 average daily trading volume of 401.7 million dollars was increased by 64.3 per cent in 1996 to 660 million dollars. This figure in 1991 amounted only to 33.5 million dollars. The current average daily trading value - including all segments of trading - is well above 500 million dollars.
Are there any sectors that have been performing strongly recently, and why are any strong sectors performing well?
For the January-June 1997 period and based on our sector indexes, significant growth has been achieved mainly in services (40.3 per cent), finance (38.6 per cent) and construction (11.6 per cent).
This remarkable increase is due to several reasons; namely, a significant investment inflow on telephone companies and electric utilities (services), and higher lending, mainly bank lending, which has resulted in a more active construction sector, thus setting other economic sectors in motion.
What will be the impact on your stock exchange of increasing globalisation of the capital markets?
The market globalisation process presents two well-known aspects. On the one hand, it carries the benefits of allowing us to reach out to other more developed markets, and on the other hand, it involves the peril of being swallowed by these more liquid and sometimes less regulated markets. The combination of these two elements has had a strong impact on our market - and usually on other similar ones, preventing business from taking place in the local market.
We had to face the consequences of this negative aspect of globalisation in practice in 1995, and this is why we keep working to provide solutions. We think that one way of offsetting the undesired effects of globalisation is having more professional brokers and other market participants. We are also permanently revising and perhaps reducing trading costs, and are mainly aiming to be competitive, to have standardised clearing and settlement procedures and so on.
As one tangible result of the positive role of globalisation, there are 24 Argentine companies listing ADRs on major international stock markets - US, Luxembourg and London - thus making our market known in the international arena.
We are not against globalisation. We consider it a fact we must accept and a process in which active participation gains vital importance if one wants to survive and compete as a market. Participation will be given by further competitiveness, which we are addressing by implementing the above mentioned reforms as well as providing for constant technological updating, a wider variety of financial instruments, new contracts, the imminent creation of the futures and options market - a joint effort with the Chicago Board of Trade - and last but not least, more and better business opportunities.
What incentives are there for foreign investors to place investments through your brokers instead of going through larger international exchanges?
The main incentive is absolute freedom provided by the foreign investment legal framework, with free capital inflow and outflow, no prior registration requirements, neither minimum waiting periods, nor sector restrictions - apart from those applied in any country in the world - and obviously the significant tax exemptions that the regime provides for stock market transactions. Thus, capital income, stock dividends, income and return on bonds are tax exempt.
Do you think that the proposed spread of NAFTA could bring benefits to your market?
We believe that the wider scope of NAFTA will render significant mutual benefits, not only to our market, and those benefits will undoubtedly bring about new challenges which we are willing to face and for which we are preparing ourselves. We are interested in real integration, not just in exclusively regionalist concepts.
What impact does your country's inclusion in the Mercosur trade area have on the markets ?
Our country's inclusion in the Mercosur trade area has a highly significant impact on the region, and we believe that from our activity in various international fora, Mercosur will allow us to attain a leading role at world level.
Mercosur countries offer good business opportunities and good investment opportunities. In the particular case of Argentina, these opportunities are even further favoured by the security provided by the environment of political and economic stability that has been achieved.
Since Argentina's inclusion in Mercosur, imports and exports have grown remarkably within this common market, passing from 16.5 per cent to 33.3 per cent, throughout the 1991-1996 period and from 21.8 per cent to 24.4 per cent for the same period, respectively.
There appear to be numerous exchanges in your country. Do particular exchanges specialise in certain areas, and what assistance is available to foreign investors to help them approach the right markets ?
Currently there are thirteen exchanges in our country. Some of them specialise in certain products such as the one in Rosario (grains), even though such 'specialisation' can't be applied generically to other exchanges in the provinces.
Some of the alternatives available for the provincial exchanges are to encourage and promote access of SMEs (small and medium-sized enterprises) to the capital markets and the trading of new instruments such as credit invoices.
What plans are there for any future privatisations? Will foreign investment play a part in any privatisation and, if so, how much of one?
The most important privatisations scheduled for this year are the airports and the National Mortgage Bank. Great interest has also been attracted by the sale of the Employee Stock Ownership 10 per cent of the YPF oil company, which will probably be channelled through the stock market.
The exchange tries to play a leading role in these processes, similar to the one it played when YPF and the telephone companies were privatised. The Buenos Aires Stock Exchange is the natural environment for the genuine realisation of popular capitalism by means of spreading out privatised capitals among the investing public. Moreover, it guaranteed further transparency.
Besides, the presence of top international brokerage firms at MERVEL allows foreign investors to participate in the local market directly.
How is the stock market regulated ? What powers does any supervisory body have, and do you think greater regulation is necessary ?
The 17,811 Act governs the public offering of securities, along with rules and regulations by the National Securities Commission (CNV) and by the Buenos Aires stock exchange (BCBA), among other provisions.
The CNV is the government regulating agency that supervises the whole stock market system and the BCBA is a civilian association with ample self-regulating powers.
We have reached an absolutely balanced relationship with the regulatory authorities, by which we do not consider it necessary to have future regulation. Moreover, we do not view are regulated parties as foes, but as clients we have to provide with the best services available at international competitive costs.
Is new technology going to have any impact on your stock exchange ? If so, in what way ?
No doubt about it. As mentioned before, we are undergoing a technological renovation programme, set as a strategic goal as far as competitiveness is concerned.
From the trading standpoint, for example, we have incorporated an electronic matching of orders system - called SINAC - which has been successfully operative since 1996. Only government and corporate bonds were initially traded in that system but due to the above-mentioned success and acceptance gained within traders, it can be currently used for stocks and even financial trust's share certificates.