Forty Brazil IPOs Waiting for Global Market Pickup, BM&FBovespa CEO Says

BM&FBovespa SA (BVMF3) Chief Executive Officer Edemir Pinto said there are 40 companies waiting to list on Brazil’s stock exchange when market volatility eases as the country’s central bank cuts interest rates to boost growth.

Investors will return to Brazil’s stocks because the worst of the recent financial tumult is over, Pinto said via translation by Marcelo Maziero, the company’s chief product and customer development officer, in an interview from Hong Kong yesterday. While no initial public offerings have been priced since July, the head of Latin America’s largest securities exchange reiterated his forecast for 200 new share sales by 2015.

“Inflation seems to be controlled and with this decrease in interest rates, we see a lot of growth in the future,” Pinto said. “There’s a huge need for investment in infrastructure in Brazil and we have a lot of room to grow the capital markets.”

Brazil’s bourse is seeking to boost trading volume by cross-listing index derivatives from other emerging-market exchanges and attracting high-frequency traders through its new electronic platform. The Bovespa index has lost 18 percent this year as domestic inflation reached the fastest pace since 2005 amid evidence of weakening economic growth around the world and concern that Greece may default on its debt.

Brazil’s central bank cut borrowing costs for a second time this year on Oct. 19 to 11.5 percent from 12 percent. The national statistics agency said the next day that inflation in South America’s largest economy fell in mid-October for the first time in 14 months, a sign that policy makers may keep lowering interest rates.
High Speed

Pinto had said in a January interview that IPOs in Brazil this year would likely beat the 2007 record of 55.6 billion reais ($31.8 billion), a prediction he later scrapped as Europe’s worsening debt crisis caused investors to flee emerging-market assets. Eleven Brazilian companies have raised 6.51 billion reais in initial sales priced so far this year, 30 percent less than the same period in 2010.

BM&FBovespa started its high-speed trading platform, called Puma, for derivatives on Oct. 17, Pinto said. Daily volume peaked at about 700,000 contracts since the new system began, compared with a previous high of 110,000, he said. The platform reduced the time it took to process a trade from more than 10 milliseconds to less than one, according to Maziero.

Pinto estimates that high-frequency trading may eventually make up 20 percent to 30 percent of Brazil’s market volume from the current 8 percent. Puma, which was designed with CME Group Inc., will begin for equities by the end of March and for fixed- income products by the middle of next year, he said.
BRIC Nations

Part of the bourse’s long-term strategy is to make it easier for overseas investors to purchase Brazilian shares, Pinto said. BM&FBovespa aims to give North American investors access to Brazilian stocks through Chi-X Global Holdings LLC’s trading platform by the end of March 2012. The investor would own the stock purchased and the trade would be settled in Brazil, Pinto said.

BM&FBovespa is also increasing alliances with other exchanges and is working on a stock index from the so-called BRIC nations of Brazil, Russia, India and China. It intends to cross-list index derivatives based on other emerging markets by March.

Common depositary receipts for Vale SA, the world’s largest iron-ore producer, gained 3.5 percent to HK$186.10 at 11:34 a.m. in Hong Kong today after Deutsche Bank AG said in an Oct. 24 note that prices for iron-ore are poised to rebound. The preferred shares rose 5.9 percent to 40.12 reais in Sao Paulo yesterday. The Brazilian company began trading in Hong Kong in December 2010.

“If we could dream freely an investor could buy stock here from India or Russia,” Maziero said. “It would be feasible for one person in one country to invest everywhere.”