Beyond mature markets, investors and trading firms looking for opportunities should keep in mind the potential an emerging market offers. By that benchmark, then, Colombia, Peru, Chile and Argentina should be high on peoples’ shopping lists as these countries have come a long way in improving their infrastructures and thus their links—both electronically and culturally—to the global investment community.
After decades of (relative) financial discipline coupled with steady advances toward democracy and market capitalism, Colombia, Peru, Chile and Argentina have emerged with strong economies and fairly youthful populations with rising incomes. Each country has a burgeoning middle class with a keen financial awareness. It’s telling that these four nations are becoming known for their growing strengths rather than old stereotypes.
Overall, Latin America’s capitalization, competitive strengths in commodities and healthier economies have helped these markets bounce back from the global slowdown. These superior conditions have allowed many LatAm nations to sidestep the structural problems challenging the developed economies and governments, and have allowed them to offer investment grade securities.
At the same time, the LatAm stereotype of tin-horn dictators is a thing of the past. Gone are the days of quasi-permanent civil war conditions, massive human rights abuses, destructive central planning and devastating economic conditions. Political stability and economic growth have become the norm. Just this past October in Argentina, President Cristina Kirchner won re-election with 54% of the vote, helped by a surging economy with a 9% growth rate for this year.
The economies of Colombia, Peru and Chile have also been surging. As they were pulling together their economies, they invested in state-of-the-art trading infrastructures, paving the way for a healthy flow of IPOs, advances in electronic trading and ever-more connected exchanges. A growing number of transactions on Latin American markets are executed electronically, helped by the adoption of global standards such as FIX-based connections.
In addition, these markets are “reaching out”, thereby acquiring global visibility:
- This past May, the Integrated Latin American Market, or MILA, officially launched, bringing together the stock exchanges of Peru (BVL), Colombia (BVC) and Chile (BCS). The consolidation aims at facilitating cross-exchange trading, and ultimately standardizing trading procedures as well as clearing and settlement rules. It opens up opportunities for liquidity because it increases the diversity of companies that can invest via the combined venue, estimated to be larger than Mexico’s exchange. Over the coming months, MILA will be looking at further boosting liquidity opportunities. This brings hope for more illiquid Latin American markets since they could eventually be able to join MILA, in turn creating new trading opportunities.
- In Argentina, the main derivatives market Rosario Futures Exchange (ROFEX) recently joined SunGard’s Global Network (SGN) to bolster its connectivity, order routing and market data capabilities.
- The Bolsa Electronica de Chile (BEC) signed an alliance with NASDAQ OMX Group that will provide the BEC with OMX market technology, X-stream Trading, and advisory services for product development and global visibility.
With cross-asset trading in mind, LatAm exchanges are embracing low-latency and co-location technologies. The faster transactions and market data delivery will support high frequency trading strategies, algorithmic order flow and complex strategies for equities and derivatives. In many cases, firms will also be able to find support for co-location and direct market access services via brokerages.
With so many overtures from Latin America, it’s not surprising that many of my clients are looking for more LatAm opportunities after pushing into Brazil and Mexico. Yet firms looking into Colombia, Peru, Chile and Argentina will likely have to review their front-line trading strategy in order to take advantage of cross-continental links.
The good news is that if investors and firms want to take the leap, the front-office connectivity tools exist for fast, direct connections together with low-latency feeds and execution. They can also implement order routing, state-of-the-art order management systems and trading apps. Of course, changes made to the front office will have consequences upon middle and back office operations, especially if the front office jumps to low and ultra-low latency speeds. Adjustments at all levels are possible to maximize LatAm opportunities. It’s really a matter of taking the first step.