José-Oriol Bosch Par, CEO, Mexican Stock Exchange (Bolsa Mexicana de Valores, BMV): Interview

Interview: José-Oriol Bosch Par

What strategies are being employed to increase foreign investment and financial inclusion?

JOSÉ-ORIOL BOSCH: In January 2019 the government signed a decree that aims to boost the stock market and financial institutions for the benefit of entrepreneurs. The decree is focused on bringing young people into the financial services sector, encouraging share listing and promoting digitalisation of the banking sector through mobile technology. We are currently observing a change in the mentality and culture of investors, and financial institutions are adapting to meet that change. In the past, a company only needed to be profitable; however, today, investors and stakeholders demand that firms operate in a socially responsible way, for example, by employing green environmental practices, issuing green bonds and promoting equity between the genders. Investors are beginning to pay attention to companies that are both fiscally and socially accountable.

Meanwhile, financial institutions like the BMV and the Institutional Stock Exchange are carrying out initiatives to bring more foreign investment to Mexico. However, two significant challenges will remain: how best to promote the financial inclusion and education of the average citizen.

Which products have played the strongest role in the energy sector in 2019 so far, and what can we expect in the upcoming months?

BOSCH: Real estate investment trusts (fideicomisos de inversión y bienes raíces, FIBRAs) increased by about 24% in the first half of 2019. Such performance can be explained by favourable interest rate expectations, increasing revenue and growing demand for property. In comparison to other instruments, we could say that FIBRAs have played the strongest role in the energy sector and will likely retain that position for the rest of the year. In terms of development capital certificates and investment project certificates, while lower liquidity has been registered in comparison to FIBRAs, considerable growth has taken place. Meanwhile, new special purpose acquisition companies are also being activated.

However, as far as the energy sector goes, the administration of President Andrés Manuel López Obrador seems keen to develop state-owned oil company Petróleos Mexicanos (Pemex) and the Federal Electricity Commission. For financing options, Pemex does not necessarily have to use the equity and debt markets. There are plenty of mature assets that can be channelled towards FIBRAs, and by doing so, they could secure funding that is not related to debt. An additional positive aspect is that these products have already been tested in terms of regulation.

How has competition within the stock exchange contributed to economic expansion?

BOSCH: Competition is healthy as long as the benefits outweigh the costs. Competition is not profitable, however, if the client ends up paying double the amount in the end. The real challenges for Mexico are growing stock market representation, increasing the number of issuers, decreasing levels of tax evasion, promoting the financial culture of the average citizen, and improving relations between family companies and corporate governance. There is also a great opportunity to lower barriers to entry and increase benefits. Meanwhile, the country should aim to achieve economic growth figures of between 2% and 3%. The government is currently aiming for 4-6%. With regard to demographic and geographic factors, Mexico has the potential to make that growth happen. With the country’s GDP expected to continue expanding in the second half of 2019, investors should take note and use their resources to invest in the stock market. The economic cycle should be complete since both the consumption and savings of the average citizen are widely expected to increase.