Bloomberg
Mexico’s stock drought deepens under the supervision of Lopez Obrador
(Bloomberg) – Mexico is sinking more and more into an initial public offering funk for decades, even as world markets see a record number of new listings. the busiest start of a year on record. In Latin America, the new listings in Brazil may surpass, last year, the best in the market in a decade. Mexico, for its part, has not seen an IPO close to $ 1 billion since the end of 2017. And the road ahead looks very dry, say local bankers. Although the stock markets in Brazil and the U.S. have set a record since 2017, Mexico’s benchmark index is still well off its highs that year, and this is discouraging companies from entering the market. Last week, a Mexican REIT raised about $ 330 million in the first equity offering of the year. The only other issue on the horizon is a set of toll roads in another structure similar to the REIT that will be launched sometime this year. One of the biggest factors hanging over Mexico’s economy and stock market was the change in populist policy under President Andres Manuel Lopez Obrador, which has diminished business confidence among some investors. The uncertainty is likely to increase before the state and Congressional elections later this year, where your party can consolidate power, Citibanamex said in a report. The bank projects that the CPI index will fall by almost 8% in the middle of the year and end 2021 about 1% below Friday’s close. Political uncertainty is driving Mexican companies to slow investment, said Pablo Riveroll, who manages Latin American stocks for Schroeders Plc. He does not see large companies entering the stock market in the next year or two. “The Mexican business community is very cautious, if it is investing less,” he said. While it is easy to blame Lopez Obrador’s conflicts with the business elite for the IPO drought, there are also structural issues that have been undermining the market for decades, Riveroll said. First, there is a supply problem. Most Mexican industries are dominated by a handful of companies. There is a major player in each of the milk, bread, cement and telephone sectors, a pair of Coca-Cola bottlers, two television networks and two large mining companies. Of the 20 largest companies in Mexico today, only four are new from a decade ago. In Brazil, eight companies rose to the top 20 in the same period. Mexico created just one of the 546 unicorns in the world, or private companies worth more than $ 1 billion, compared with nine in Brazil and 25 in India, according to data compiled by CB Insights. “It’s not because our entrepreneurs are stupid, it’s because they don’t have the right incentives to grow,” said Jorge Gordillo, head of analysis at Mexican brokerage Ci Banco. The lack of competition is the main factor that has limited Mexican GDP growth to an average of 2% over the past two decades, he said. There is also a demand problem. Local pension funds have reduced their holdings in Mexican stocks from about 10% of their portfolios to 5% over the past decade, as foreign stock allocations have increased, Santander analyst Alan Alanis said in a report this month. That could change in the next decade, as greater contributions by companies to workers’ accounts appear after a reform at the end of last year. Alanis projects that pension funds may eventually invest an additional $ 15 billion in Mexican stocks over the next seven years. Shallow markets Meanwhile, Mexico lacks the growing local hedge fund industry and retail investor market that has helped drive new offers in Brazil. With less local demand, companies in Mexico need to achieve valuations of around $ 1 billion to attract enough international investors to make their listings viable. There are not many companies of this size that want to go public, Gordillo said. There are some signs of life, however. Mexico had its best quarter of Series A private equity fundraising, mainly due to the $ 65 million investment by General Atlantic and others in the online grocery store Justo earlier this month, according to data compiled by Bloomberg. Atlantic is also supporting the payments startup Clip, along with SoftBank Group Corp., which also financed the Kavak used car platform – the Mexican unicorn. For more articles like this, visit us at bloomberg.comSubscribe now to stay on top of the most trusted business news source. © 2021 Bloomberg LP