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Assessing the stage of financial market development in CEMLA countries TBC, Monetary and Capital Markets Department IMF September, 2019 Developing capital markets – key aspects Developed and deep capital markets play a key role in: Financing economic growth Influencing financial stability Transmission of monetary policy Enabling environment: Macroeconomic stability Market autonomy Strong legal frameworks Effective regulatory regime Other drivers may include • (Better disclosure standards; investor diversity; internationalization; hedging markets; efficient and robust market infrastructures) Evolution and Outlook for the Mexican Economy 1 Size of securities markets As a percentage of GDP Source: BIS CGFS document “Establishing viable capital markets” Evolution and Outlook for the Mexican Economy 2 CEMLA Associate Members Market Development Index Index Note: Market Development Index evaluates the financial market development; assigning one if the country has 10 year local currency bond , 10 year foreign currency bond, Corporate Debt Market, Fixed Income Derivatives, Equity Market, Not Dollarized Currency, Free Floating Currency or FX Derivatives; and zero in other case . A dollarized currency is defined as economy with American dollars as currency and a currency with a peg. Source: International Monetary Fund, Central Banks, Stock Exchanges, and Bloomberg. 3 South America Markets: Foreign Exchange Foreign Exchange Index Foreign Exchange Information Percentage Free Capital 24/7 trading Market 1600% Flag Country Free floating CLS member Argentina convertibility control activity derivative Bolivia Brazil Argentina Chile 1400% Colombia Bolivia Ecuador Guyana 1200% Brazil Paraguay Peru Chile Suriname 1000% Uruguay Venezuela Colombia Mexico 800% Ecuador 600% Guyana Paraguay 400% Peru 200% Suriname Uruguay 0% Venezuela Jul-01 Jul-12 Jan-00 Jan-07 Jan-18 Jun-05 Jun-16 Oct-00 Oct-11 Oct-18 Apr-06 Apr-13 Feb-03 Sep-04 Feb-14 Sep-15 Dec-03 Dec-10 Aug-08 Aug-19 Nov-07 Nov-14 Mar-10 Mar-17 May-02 May-09 Mexico Note: Argentina’s last index is 5,700%, while Venezuela’s is 7,027,022,450%. Source: Bloomberg. 4 South America Markets: Fixed Income • In South America, Bolivia and Argentina are countries with longest maturities in local and foreign currency bonds, respectively. While Brazilian outstanding debt is the highest in the region. Longest maturity date in local and foreign currency South America Markets Outstanding Debt Debt Trading Volume Survey bonds Millions of Dollars Millions of dollar Years Foreign Venezuela 450,000 Local Uruguay 1,653,113 md 400,000 Suriname Goverment (Local Currency) 350,000 Peru Goverment (Foreign Currency) Corporate (Foreign Currency) Paraguay 300,000 Corporate (Local Currency) Guyana 250,000 Ecuador 200,000 Colombia 150,000 Chile Brazil 100,000 Bolivia 50,000 Argentina Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru Suriname Uruguay Venezela 0 Jan-47 Jan-88 Jun-15 Oct-01 Apr-33 Sep-60 Feb-29 Aug-19 May-74 Note: Data from first quarter 2019. Guyana and Suriname did not give information in the survey. Source: Bloomberg. Source: Bloomberg. Source: Trade Association for the Emerging Markets (EMTA) 5 South America Markets: Equity • Considering the market capitalizations as a measure of size for a stock exchange, Chilean and Brazilian stock exchange are the biggest in the region. Stock Exchange Index Exchange Market Capitalization as Percentage of GDP Daily Average of Volume Traded in Stock Exchanges Percentage Percentage Millions of dollars 9000% Argentina Brazil 8000% Chile 7000% Colombia Ecuador 6000% Peru 5000% Venezuela Uruguay 4000% 3000% 2000% 1000% 0% Jul-01 Jul-14 Jan-00 Jan-08 Jun-04 Jun-09 Jun-17 Oct-00 Oct-08 Oct-13 Apr-02 Apr-07 Apr-15 Sep-03 Feb-05 Feb-13 Sep-16 Feb-18 Dec-02 Dec-10 Dec-15 Aug-06 Aug-11 Aug-19 Nov-05 Nov-18 Mar-10 May-12 Note: Venezuela’s last index is 4396584%. Source: World Bank. Note: 2018 daily average . Source: Bloomberg. Source: Stock Exchanges and Bloomberg. 6 Central America Markets: Foreign Exchange Foreign Exchange Index Percentage Belize 280% Costa Rica El Salvador 260% Guatemala Honduras 240% Nicaragua Free Capital 24/7 trading Market 220% Flag Country Free floating CLS member convertibility control activity derivative 200% Belize 180% Costa Rica 160% El Salvador 140% Guatemala Honduras 120% Nicaragua 100% 80% Jul-01 Jul-12 Jan-00 Jan-07 Jan-18 Jun-05 Jun-16 Oct-00 Oct-11 Oct-18 Apr-06 Apr-13 Feb-03 Sep-04 Feb-14 Sep-15 Dec-03 Dec-10 Aug-08 Aug-19 Nov-07 Nov-14 Mar-10 Mar-17 May-02 May-09 Source: Bloomberg. 7 Central America Markets: Fixed Income • In Central America, Costa Rica and Guatemala are countries with longest maturities in local and foreign currency bonds, respectively. While Costa Rica outstanding debt is the highest in the region. Longest maturity date in local and foreign currency Central America Markets Outstanding Debt Debt Trading Volume Survey bonds Millions of Dollars Millions of dollar Years 40,000 Foreign Nicaragua 42,924 md Local 35,000 Honduras 30,000 Goverment (Local Currency) Corporate (Foreign Currency) 25,000 Guatemala Goverment (Foreign Currency) Corporate (Local Currency) 20,000 El Salvador 15,000 10,000 Costa Rica 5,000 Belize 0 Belize Costa Rica El Salvador Guatemala Honduras Nicaragua Jul-41 Jun-52 Jun-63 Aug-19 Aug-30 May-74 Note: Data from first quarter 2019. Source: Trade Association for the Emerging Markets (EMTA) Source: Bloomberg. Source: Bloomberg. 8 Central America Markets: Equity • Considering the market capitalizations as a measure of size for a stock exchange, El Salvador and Honduras stock exchange are the biggest in the region. Exchange Market Capitalization as Percentage of GDP Number of listed companies by country Stock Exchange Index Percentage Companies Percentage 800% Costa Rica 700% Mexico 600% 500% 400% 300% 200% 100% 0% Jul-01 Jul-12 Jan-00 Jan-07 Jan-18 Jun-05 Jun-16 Oct-00 Oct-11 Oct-18 Apr-06 Apr-13 Feb-03 Sep-04 Feb-14 Sep-15 Dec-03 Dec-10 Aug-08 Aug-19 Nov-07 Nov-14 Mar-10 Mar-17 May-02 May-09 Source: Bloomberg. Source: World Bank. Source: Stock Exchanges and Bloomberg. 9 Caribbean Markets: Foreign Exchange Foreign Exchange Index Foreign Exchange Information Percentage Aruba 600% Bahamas Barbados Free 24/7 trading Market Flag Country Free floating Capital control CLS member Cayman Islands convertibility activity derivative Cuba 500% Curacao Aruba Eastern Caribbean Haiti Bahamas Jamaica 400% Dominican Republic Barbados Trinidad and Tobago Cayman Islands 300% Cuba Curacao 200% Eastern Caribbean Haiti 100% Jamaica Dominican Republic Trinidad and Tobago 0% Jul-01 Jul-12 Jan-00 Jan-07 Jan-18 Jun-05 Jun-16 Oct-00 Oct-11 Oct-18 Apr-06 Apr-13 Feb-03 Sep-04 Feb-14 Sep-15 Dec-03 Dec-10 Aug-08 Aug-19 Nov-07 Nov-14 Mar-10 Mar-17 May-02 May-09 Source: Bloomberg. 10 Caribbean Markets: Fixed Income • In Caribe, Jamaica and Dominican Republic are countries with longest maturities in local and foreign currency bonds, respectively. While Cayman Islands outstanding debt is the highest in the region. Longest maturity date in local and foreign currency Caribbean Markets Outstanding Debt bonds Debt Trading Volume Survey Millions of Dollars Millions of dollar Years 40,000 Aruba Foreign 404,066 md Local 35,000 Trinidad and Tobago 30,000 Dominican Republic Corporate (Local Currency) Jamaica Goverment (Foreign Currency) 25,000 Goverment (Local Currency) Corporate (Foreign Currency) Haiti 20,000 Eastern Caribbean 15,000 Curacao 10,000 Cuba Cayman Islands 5,000 Barbados 0 Aruba Bahamas Barbados Cayman Islands Curacao Eastern Caribbean Ja maica Tobago and Trinidad Bahamas Note: Data from 2019 first quarter. Aruba, Cayman Islands, Curacao, Eastern Caribbean, Jul-41 Jun-52 Aug-19 Aug-30 Haiti and Cuba did not give information in the survey. Source: Trade Association for the Emerging Markets (EMTA) Source: Bloomberg. Source: Bloomberg. 11 Caribbean Markets: Equity • Jamaican and Trinidad and Tobago stock markets are those with highest listed companies in Caribbean region. Number of listed companies by country Historical Stock Exchange Index Companies Percentage 16 Bahamas Cayman Islands Barbados Cayman Islands 14 Cuba Curacao Barbados Eastern Caribbean 12 Haiti Jamaica Dominican Republic 10 Bahamas 8 Eastern Caribbean 6 4 Trinidad and Tobago 2 Jamaica 0 Jul-06 Jul-14 0 10 20 30 40 50 60 Jan-00 Jan-05 Jan-13 Jun-01 Jun-09 Oct-05 Oct-13 Apr-07 Sep-00 Sep-08 Feb-10 Sep-16 Feb-18 Dec-07 Dec-15 Aug-03 Aug-11 Aug-19 Nov-18 Nov-02 Nov-10 Mar-02 Mar-15 May-04 May-12 May-17 Source: Stock Markets. Source: Bloomberg. 12 Mexico: Fixed Income Market • The Mexican fixed income market has showed a significant improvement and development over the last two decades. During this time, the market evolved from being closed and with few types of securities, to one of the most liquid and deep markets in the emerging and developed economies with several instruments available for trade. Investors Position in Government Securities Sovereign Debt Securities Characteristics Evolution of Mexican yield curve denominated in Mexican Pesos Percentage Percentage of Government securities outstanding 50 1995 100% Face Interest 90% Security Maturities Interest rate First issue 45 Value payments 28 and 91 80% Zero- CETES 10 days, six January 19, 40 coupon Discount rate pesos months and 1978 Federal Treasury Certificates bonds 70% one year Overnight effective 35 BONDES D 1, 3 and 5
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