Analysis: Mexico’s stock market exodus accelerates with the exit of Monex

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The Mexican Stock Exchange building is pictured in Mexico City, Mexico, February 27, 2020. REUTERS/Edgard Garrido

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MEXICO CITY, Aug 25 (Reuters) – Mexican brokerage Monex has become the latest in a series of firms to pull out of the Mexican stock market, underscoring the struggles of the Bolsa Mexicana de Valores (BOLSAA.MX) not only to attract IPOs, but also to stop a steady exodus.

Monex (MONEXB.MX) attributed the exit, which shareholders approved on Tuesday, to costs associated with listing on the stock exchange.

“We only took the company public to show investors what we were doing. But (the exchange) was not a financing vehicle for us,” Monex chief executive Mauricio Naranjo told Reuters. .

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The planned release follows similar announcements from retailer Grupo Sanborns (GSANBORB1.MX) in July and Mexican airline Aeromexico (AEROMEX.MX) in June.

While the latter company’s exit was the product of an unusual circumstance – its restructuring process emerging from bankruptcy – the carrier said that when it relists, it plans to do so on the New York Stock Exchange. Read more

Although the companies gave different reasons for their respective departures, the move is seen by analysts as a reaction to a weakened market.

“Companies are delisting because valuations are low, with the Mexican market generally being very cheap,” said Valentin Mendoza, analyst at wealth management firm Actinver.

The benchmark S&P/BMV IPC has an average price-to-earnings ratio of 10%, according to data from Refinitiv, while the S&P 500 trades at 20 times earnings. Granted, its Latin American sibling, Brazil, has a P/E ratio of 6.13, indicating that some of the valuation gap may be regional and not unique to Mexico.

About 10 companies, including dairy company Lala (LALAB.MX) and paper producer Bio Pappel, have left the BMV or announced their intention to do so in the past year, and the exchange has not failed to attract a new listing since 2017.

The exchange’s chief executive told Reuters in July he was “worried” about its failure to attract business. Read more

The exchange’s average daily trading volume in the second quarter was 19.2 billion Mexican pesos ($961.06 million), almost one-sixth of Brazil’s B3 exchange, which averaged 28 .8 billion reais ($5.64 billion) for the same period.

“It reflects the perspective companies have of the market, and it’s not very flattering,” said Carlos Fritsch, director of Mexican firm Prognosis.

Mexico’s slow economic recovery from the first hits of the coronavirus is partly to blame for the weakness, Fritsch added.

Mexico’s economy has been essentially stable since 2019, according to World Bank data, lagging even Brazil, which has recorded 1.2% growth since then and compared to 2.2% for the United States, which have spent more aggressively on stimulus.

President Andres Manuel Lopez Obrador has also spooked investors by arguing for increased state control over certain sectors, Fritsch added.

“There is a perception that this administration is not business-friendly,” he said.

“The Mexican market has been concentrated with just about a few companies, it’s an exchange without a big deal and the companies think they’re not being valued at the right price,” said Raul Feliz, associate professor at the Mexican Center for Research. and economic education. (CIDE).

Feliz said more companies are likely to drop from the list in the coming months.

The market capitalization of the Mexican stock market in 2021 represented 35.64% of the country’s GDP, while the Brazilian stock market represented 50.99% over the same period. The U.S.-based NASDAQ and NYSE exchanges together accounted for 221% of the country’s GDP in 2021, according to data from the World Federation of Exchanges and the World Bank.

“It’s a vicious circle,” Fitsch said, explaining that Mexico’s smaller market lacks the “critical mass” of markets like Brazil and the United States.

($1 = 19.9780 Mexican pesos)

($1 = 5.1037 reais)

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Reporting by Carolina Pulice and Kylie Madry; Additional reporting by Peter Frontini; Editing by Christian Plumb

Our standards: The Thomson Reuters Trust Principles.

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