Interview: Christian Laub
What are the main challenges to increasing liquidity and trading volumes on the exchange?
CHRISTIAN LAUB: First, the BVL is a market that relies heavily on mining, a sector where market capitalisation has a high degree of dependence on external variables, namely the prices of commodities. This is why in recent years, the decrease in liquidity was caused not only by a volume effect but also by a price effect. Volumes have decreased mainly because economic deceleration has affected profits. Second, there have been structural issues such as the capital-gains tax which, due to an important reform in Congress, has been eliminated. The removal of such a long, bureaucratic procedure that dissuades potential investors from listing on the BVL is an important step in the right direction. Additionally, by introducing specific requirements for all companies regarding the liquidity of their stocks and the volume of their traded stocks, listed companies have been incentivised to become “market makers”. Other measures are also being taken, such as increasing the size of the debt market by reducing barriers to entry for all organisations.
There are, however, important challenges ahead, due to banks becoming more competitive when it comes to corporate lending, and because there is a scarcity of buyers in the debt market. This second issue would benefit significantly from the unification of the Integrated Latin American Market ( Mercado Integrado Latinoamericano, MILA) countries’ capital markets. Another important change that has taken place is the approval of a law that recognises invoices as tradable assets. If done correctly, these could become the biggest liquid asset in the market.
How can Peru promote capital markets integration among MILA countries?
LAUB: If Chilean pension funds and mutual funds from MILA countries were given fair treatment in terms of legal requirements and taxes, I have no doubt that they would come to the BVL and vice versa. However, there are significant challenges to this, including currency. Integration means promoting direct currency trade between MILA countries, and discouraging triangulation with the US dollar. This would bring great benefits, since there is generally less volatility between MILA currencies than between each of these and the US dollar.
There has been little done on the regulatory front to increase capital market integration between MILA member states. One reason for this is that it is harder to reform established systems than it is to build a new system from scratch, which is why we have to start thinking about maintaining each country’s local regulations as well as building a new supra-national regulatory system from the ground up. That being said, it is also important to underline that the Pacific Alliance has already started work on a list of subjects that are targeted towards increasing financial integration, such as pension fund portability and tax treatment, and the harmonisation of the primary equity and debt markets.
To what extent can the infrastructure sector help the Peruvian capital markets to diversify?
LAUB: Assuming that Peru continues to be a mining country, its capital markets will remain heavily reliant on this sector. It is important, therefore, to increase the number of mining companies listed on the BVL, thus boosting the liquidity of the market. Capital markets will diversify as a result of Peruvian firms becoming “multilatinas”, increasing their need for capital as they expand. This will happen not only in infrastructure, but also in other sectors such as heavy industries, food manufacturing and consumer products. The biggest challenge that we face is to shift the culture of family ownership towards a culture that values the benefits of being publicly listed.
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