IPOS: The Boom in Emerging Equity Markets
Schineller, Lisa M., Americas Quarterly
Initial public offerings (IPO) worldwide raised a record level of capital in 2007-driven in large part by emerging markets that increasingly list companies on their own exchanges. China remains the undisputed leader, with Indian and Russian stock markets-thanks to "mega" IPOs-returning impressive results. As a whole, equity market capitalization in Latin America is much smaller than in European and Asian emerging markets.
Brazil is Latin America's unchallenged leader in terms of market dynamism. The BOVESPA, or Brazilian stock exchange, launched 64 IPOs in 2007, including opening its very own capital. Brazilian IPOs generated $29 billion (or 55.5 billion reais), putting Brazil behind only China and the United States in terms of capital raised globally. In 2007, the BOVESPA's market capitalization grew by more than 90 percent (in U.S. dollar terms)-the sixth largest increase in capitalization worldwide. In comparison, there were over 200 Chinese IPOs last year, and growth in China's domestic market capitalization (in U.S. dollar terms) fluctuated between 200 percent and 300 percent.
That said, Latin America's stock market performance has been bolstered by improved macroeconomic management, along with (previously) ample global liquidity, buoyant commodity prices, and appreciating currencies. Real GDP growth (weighted average) in the region averaged 5.4 percent annually from 2004 to 2007. During this same period, the stock markets in Peru, Colombia and Mexico posted the three highest cumulative terms. Last year, the BOVESPA was up 44 percent, the ninth best performing stock market worldwide, followed by the Lima Stock Exchange (up 36 percent) and the Buenos Aires Stock Exchange (up 18 percent).
Despite local stock market gains, IPO activity has only boomed in Brazil. Chile and Mexico possess the region's most mature equity markets, but from 2004 to 2007 they saw a total of around 25 IPOs. The Colombian and Peruvian equity markets appear to have solid growth potential, as judged by stock market performance and favorable economic growth outlooks. IPO activity, however, was in the low single digits during the last four years.
New issuance in the region, including both IPOs and secondary offerings, is dominated by Brazil. This reflects both demand and supply factors, namely the size and flexibility of assets under management in the local financial market and the breadth and depth of the Brazilian economy.
The BOVESPA accounts for about two-thirds of the region's market capitalization, 80 percent of daily turnover and three-quarters of total shares offered. …