Representatives of the Pacific Alliance nations – Chile, Colombia, Mexico and Peru – convened in New York this week to reassure investors of their sound economic policies and their commitment to an integrated stock market platform.

After removing tariffs and trade restrictions, officials from the four member nations said they are working on joining the separate stock exchanges so more companies can list publicly and then sell debt on the local capital markets. Up to 140 corporate issuers from Chile, Colombia, Mexico and Peru could tap the equity markets through the connected stock exchange.

The initiative is geared towards boosting small and medium-sized corporates in the Andean nations and Mexico, giving them better access to financing, Peruvian finance minister Alonso Segura told LatinFinance.

As weak commodities markets affect Chile and Peru and low oil prices impact Colombia and Mexico, the Pacific Alliance nations face strong headwinds against opening their markets to new investors and maintaining solid growth levels. But the integrated trading platform known as MILA allows companies to broaden their investor base by trading shares in any of the four markets, Segura said.

“Now is the time for larger blue-chip investors to be able
to participate in our deals,” he said. “We are also working
on mechanisms to allow fixed income instruments to trade freely via the Pacific
Alliance.”

However, according to an equities banker, foreign exchange risk could deter retail investors from buying and selling shares across borders.

“There is a huge disparity between a company’s performance in its respective local currency and what your expectations of returns are, especially if you’re doing business in US dollars,” the banker said. “Foreign investors need to study what’s required in each country and measure what their standards for investor returns are.”

MILA could help small and medium-sized businesses in the area raise capital and also be a good market for institutional investors that are less exposed to Latin American currency risks, he said. 

Segura said that the Pacific Alliance countries have recently expanded MILA, opening it up to include initial public offerings (IPOs) and secondary trading options. “More players can come to MILA and list now,” he said. “Stock market integration is advancing, even amid choppy global markets.”

Mexican homebuilder Cadu Inmobiliaria is the only company so far to list shares on MILA. The company’s IPO raised MXN2.4bn ($135m) in December 2015. Cadu’s shares were well-received by investors in the Andean region, giving them exposure to Mexico’s property and construction markets, a source on the deal said at the time.

Cutbacks
Mexico, Colombia and Chile recently announced spending cuts
on account of weak commodity prices. Colombia’s finance minister Mauricio
Cardenas said the four nations needed to be seen as a club with sound economic policies,
despite accelerated inflation and budget deficits.

The quartet’s next step, in line with the Pacific Alliance agreement, is to free up capital flows, Segura added.

“We’re four countries with responsible economic
policies,” he said. “We recognize that the global situation has changed, especially for producers of raw materials.”