Debt Trading Recovers
Trading in emerging market debt, which is dominated by Latin American issues, picked up sharply last year, growing 30% to almost $2.85 trillion in face value from $2.19 trillion in 1999. Even so, turnover has never recovered from the effects of the 1998 Russian default, the last major emerging market crisis.
Brazilian debt remained the most frequently traded of all emerging market debt assets, but its share of total trading volume slipped to 27% or $769 billion in 2000 from 37% in 1999. Turnover in Mexican debt more than doubled last year to $661.7 billion, while activity in Argentine debt increased 15% to $365.8 billion. Trading in Ecuadorian debt, which saw a lot of action in 1999, the year the country defaulted on its Brady and Eurobonds, halved to $16.8 billion in 2000 following its debt exchange.
Moody’s decision to raise Mexico’s foreign currency rating to investment grade a year ago, accounts for the leap in turnover in Mexican debt. Its new status allowed Mexico to expand its investor base substantially. The smooth political transition to the new government of President Vicente Fox also helped. Furthermore, Mexican local instrument trading accounted for two-thirds of total Mexican volumes, rising 79% in the final quarter of 2000.
EMTA, the trade association for emerging markets traders, reported that in C-Bonds, the most liquid Brazilian Brady bond, remained the most heavily traded emerging market security with $229 billion. Argentina’s FRB Brady bond was second, with $94 billion.
Local instrument trading volumes surpassed Brady trading in emerging markets in the second quarter of 2000, and were the most frequently traded category of debt assets for the first time on an annual basis, EMTA said. Local markets activity totaled $993 billion, a 65% increase from 1999, and represented 35% of total trading. Eurobond trading of $936 billion also surpassed Brady bond volumes with 33% of total emerging market volume. Brady bond transactions totaled $712 billion and continued to decline as governments retire their Brady debt through exchanges or buy-backs.
The Big Freeze
Last year started well for Latin America’s Internet industry as investors flocked to fund new ventures. According to Bain & Company, private equity and venture capital firms invested at least $2.57 billion in Latin Internet ventures during 2000, up 268% from 1999. The majority of these funds were committed between January and April. The Nasdaq crash that month brought deal-making to an abrupt halt. Funding for new Internet ventures now is almost non-existent.
Investments during the first half of last year were aimed at B2C, free ISP and portal projects. These segments were hit the hardest in the aftermath of the market collapse. In the second half of the year, such interest as there was in new technology businesses in Latin America shifted to B2B projects and specialist services, such as logistics and consulting. Incubators and e-business accelerators also received considerable funding commitments last year.
Big Companies, Rich People
Several of Mexico’s most important industries are dominated by just one or two companies. Morgan Stanley, the investment bank, says the local telecommunications, media and beer markets are entirely controlled by one or two companies. This is a remarkable degree of concentration. President Vicente Fox has already taken on Telmex, the dominant telephone company controlled by Carlos Slim.
There’s no shortage of the very rich in Mexico. Forbes, the business magazine, counted 13 Mexican billionaires last year, more than any other country in Latin America. About half the members of this select group own businesses that have a dominant market share in their respective industries.
Slim is the wealthiest man in Latin America, with a $7.9 billion fortune. Lorenzo Zambrano’s Cemex dominates the Mexican cement business. He is worth $2.1 billion. Emilio Azcárraga Jean, owner of Televisa, and Ricardo Salinas Pliego who owns Televisión Azteca, control television broadcasting between them. They are worth $2 billion and $1.4 billion, respectively. María Asunción Aramburuzabala, who owns Mexico’s biggest brewery Femsa, scrapes in at the bottom of the list with $1 billion.
Growth and Poverty
The level of poverty in Latin America fell throughout the 1990s even though several of the region’s big economies suffered severe economic crises. Argentina, Brazil and Mexico all struggled with slow growth during the decade.
Yet Chile’s free market economic policies have delivered the region’s strongest growth and also achieved the biggest reduction in poverty. According data collated by the United Nations’ Economic Commission for Latin America, a decade ago, one-third of Chilean households were below the poverty line. Now, fewer than one-fifth of Chilean households have incomes beneath the poverty line. This is half the level for the region as a whole.
Chile’s performance contrasts with oil-rich Venezuela, where decades of erratic economic policies have delivered poor growth rates. There, 42% of households were below the poverty line in 1997. While this is about half the figure usually quoted for Venezuela, it is still among the highest in Latin America. Venezuela is also one of the few countries, together with Honduras and Mexico, which posted an increase in poverty levels in the 1990s.
Monthly Latin Stock Performance Data