Inaugural speech by Antonio J. Zoido, chairman of BME. The 13th Latibex Forum.
Good morning
and a warm welcome to you all. I would like to thank you all for attending this 13th edition of the Latibex Forum. Judging by the turnout, it is clear that nobody wants to miss this annual event, which unites the most important companies of Latin America with European investors interested in the region.
I would just like to focus on three basic ideas here: first, Latin America’s advantageous position in this crisis represents an extraordinary opportunity, not only for investors in the region, but especially for the region’s economies and companies and their sphere of influence. Second, Latin America’s large companies are becoming increasingly more global and as such can combine their expansion with balanced financing on a global stage. Along these same lines, a second wave of smaller companies is beginning to venture out beyond these confines and they will also need a more international equities market. And third, it is still vital that Europe, starting with Spain, is made fully aware of Latin America’s attractive economic reality so as to turn this knowledge into greater investment.
We shall be discussing the macroeconomic situation of the region’s countries at length during this Forum. In summary, the financial and economic crisis has been less pronounced here and recovery much swifter. As one would expect, lower demand from Europe and the United States has meant fewer exports from the region and the crisis in the financial markets has also affected the region’s markets, albeit to a lesser extent. Lower raw material prices have also had an impact, although much less than in the past. Despite a brief lull in 2009, the region’s economies have been growing at 5% a year since 2003 on average. The IMF, CEPAL and the OECD are estimating GDP growth of around 5% for the region, in sharp contrast with forecasts of practically flat growth for Europe and the United States.
This trend of sustained growth is not only due to strong foreign and domestic demand, but is also thanks to correct management. Over the past decade the public debt to GDP ratio has dropped by over 15 points while the fiscal deficit, previously over 2.5%, has become a surplus. This trend has meant governments have been able to successfully apply anti-cyclical policies to help ease the impact of the global crisis. The massive influx of capital to the region has also helped. The geographical distribution of direct foreign investment has changed in recent years. In 2010, emerging economies received over half of the foreign funds for the first time ever, with Latin America one of the destinations to have increased the most, rising from 5% to 10% in the past four years. The region received a total of US$113 billion in 2010.
Naturally, growth in the region is not immune to threats, the most obvious of which are the international economic crisis, more precisely, the fiscal problems in the euro zone; the possible reversal of capital flows; and slowing growth in China (trade with the region has trebled in the last decade). Paradoxically, this potential slowdown offers some opportunities. The economies could build up more sustainable growth and correct certain macroeconomic imbalances such as relatively high inflation, bubbles in certain asset markets or the excessive boom in the credit market. And more importantly, governments could continue reducing poverty and social inequalities.
Another opportunity lies in Latin America’s increasing importance on the international economic stage. It has recently been suggested that certain countries in the region, particularly Brazil and Mexico, could contribute funds, either directly by buying debt or participating in the EFSF, or else indirectly, by having a greater presence in the IMF. Regardless of what eventually happens, this approach would have been unimaginable a few years ago, while now the region has US$700 billion in reserves and three countries are members of the G-20. Over the next few years, the geopolitical balance will continue to change and Latin America must assume a greater role in international institutions and global economic policy decisions.
My second point follows on from this increasing international economic influence and concerns Latin American companies, which are becoming increasingly global, large and influential. The so-called “multilatinas” are becoming ever more present outside their countries of origin, which is affording them more diversified growth and greater prominence. After expanding in the region itself, they have now turned their attention to the United States, Europe, Asia and even Africa. Their presence in rankings increases each year. For example, there are 75 Latin American companies in the Forbes Global 2000 list, with five of these ranked in the top 100. Almost one hundred Latin American companies are active on at least two continents, they have strengthened their expansion and boast profits of over US$500 million a year. These “multilatinas” are proof that globalisation works both ways. In the 1990s, Spanish companies became multinationals thanks to their presence in Latin America and now these local companies are able to invest and expand in developed countries.
Today, large Latin American multinationals can access greater funding than ever before. Over the past four years, capital inflow to the region has doubled. Brazil and Mexico’s equity markets provide increasing amounts of financing. In 2007, the Spanish stock market channelled twice as much through rights issues as all of Latin America’s exchanges combined and in 2011 this trend has continued. To September, the Spanish stock market has channelled over $50 billion in financing to the region’s companies.
In short, investment and financing flows are changing. Europe and the United States are no longer the only trade and financing partners for Latin America. The region is now looking to Asia and the Middle East. This exchange clearly works both ways. This is not in fact a new phenomenon. It started in Spain more than 10 years ago with various pioneering companies, such as CEMEX, which decided to use Madrid as its base for international expansion after acquiring a local cement company. From there, it has ventured into markets in the East and even the Far East. More recently other large “multilatinas” such as Gerdau, Grupo Modelo, Televisa, Herdez and Arcor have set up hubs in Spain and have invested heavily in their respective sectors. Grupo Bimbo from Mexico is one of the most recent examples: it has just acquired Sara Lee’s assets in Spain and Portugal and has become one of the leaders of the food sector.
In spite of the economic crisis, Europe continues to record very high GDP per capita ratios and even though household consumption has fallen, it remains strong. Higher participation by Latin American companies can bring greater competition to many sectors, which is always healthy, but it can also attract new investment, which will mean higher growth and job creation.
I believe Spain can offer excellent conditions as an expansion hub for these “multilatinas” in Europe and even looking eastwards. Not only do we share a common language, culture and way of life but as a member of the European Union, Spain also boasts a regulatory and financial structure which is legally and institutionally secure. Spanish banks have been working in the region for decades and have a close relationship with these companies. Also, over 30 “multilatinas” are listed on the Latibex, the only international market exclusively for Latin American securities.
February saw a new addition to the Latibex. Grupo Suramericana from Colombia is an important financial and industrial conglomerate and is the country’s fourth largest company by market cap. It also has one of the strongest traditions there.
For 12 years this market has witnessed the increasingly international presence of Latin America’s economies and its indexes have faithfully reflected the performance of its companies. In 2011, the FTSE Latibex Top index declined by around 15%, in line with the European indices, despite the gains obtained in the previous two years. In the wider scheme of things, the performance has been much more favourable, with the FTSE Latibex Top rising 59% in the past three years alone and nearly trebling its value since its beginnings in 2002.
As we saw happen with medium and even small Spanish companies who, in a second wave followed the big guns to Latin America, we are now seeing smaller Latin American companies venture into Spain and the rest of Europe. These companies are still not large enough to approach traditional equity markets and are looking to the Latibex or the Mercado Alternativo Bursátil (MAB) for the first time. These markets, which are better suited to companies with emerging international activity but who have limited stock market experience, offer an interesting alternative to supplement the financing requirements of these companies and help them improve their reputation among potential investors, suppliers and customers.
This economic reality, marked by burgeoning relations in both directions, can be bolstered further through increased mutual sharing of information and knowledge. Ignorance is the greatest barrier to investment. In the case of Latin America, this ignorance persists in Europe and we must join forces to eliminate it. BME has now organised 13 Latibex Forums to do precisely this and although these forums are not our only initiative, they are the most visible. We also organise smaller forums for private banking clients, in Spain and abroad, along with meetings and presentations for small investors, and we ensure we have a permanent presence in the specialist media, to cite just a few examples.
We do all this as we are committed to a long-term undertaking and we are convinced that Latibex is a simple and efficient option for companies and savers. For the occasional investor or one that does not have a very large portfolio in the region, it is difficult to operate in real time in several local markets simultaneously: paperwork remains complicated and the process slow in some countries, while foreign currency exchange, settlement and custody fees are very expensive compared to the European standard. And then there are the measures in place to try to curb the appreciation of certain currencies, which have become more expensive, and in many cases, made it more difficult for foreign investors to tap certain markets. In contrast, the Latibex offers investors the possibility of operating with the region’s main securities as if they were Spanish stocks, with the same processes, costs and ease.
Latibex has built a unique mechanism whereby there is a permanent connection between the local markets and Spain. The shares listed on the Latibex are exactly the same as the ones traded on the region’s stock exchanges and can be traded in both directions easily and at a very low cost. This offers investors an additional advantage because we can guarantee that liquidity on the Latibex is, at all times, equivalent to that in the market of origin, be that Mexico, Brazil or Chile. This is thanks to intermediaries, whom we call specialists, and who are committed to providing constant counterparty interest for each security.
We shall be discussing all these issues over the next three days.
We have prepared a programme where we will be analysing the region’s major economies with the finest analysts and managers from the leading companies of each country. We shall be looking at Chile, Mexico, Brazil and Peru and shall also study those sectors which are leading development in the region. We will also analyse increasing ties between China and Latin America, the challenge of innovation in the region and the role that Spain and Madrid can play as a gateway to Europe for these “multilatinas”. In total, there will be 15 special panels and speeches and I invite you to take an active part in these debates, and to arrange private meetings with the 50-plus participating companies.
And finally, I would like to tahnk you all for being here, the media for their coverage of the Forum and the sponsors for their invaluable support, all of which make this gathering possible
Thank you very much for your attention.
