Aeroméxico’s flight to the US illustrates woes of Latin America’s bourses

Flag carrier Aeroméxico was not the best advertisement this year for Mexico’s stock market. The airline’s share price hurtled towards the ground at dizzying speed in March, prior to a recapitalisation as it emerged from a Chapter 11 bankruptcy restructuring which all but wiped out smaller shareholders.

A newly rejuvenated Aeroméxico now intends to invest $5bn and expand its fleet. But its recovery plans do not include Mexico’s stock exchange. The airline is to delist in its home country and try its luck on the US stock market instead.

It is not alone: Mexico’s bourse had more delistings than new offerings in 2021. The country’s biggest dairy company Grupo Lala and its number two bank Santander México were among the departures.

“Given the lack of investors on the Mexican market, some kind of partnership with the big liquid US exchanges is the way to go for the local market,” says Martin Werner, a former co-head of Goldman Sachs investment banking business in Latin America.

Mexico’s stock market woes point to a wider regional problem: most of Latin America’s bourses are withering and only Brazil has bucked the trend.

Hyperinflation and chavista economics destroyed Venezuela’s bourse years ago. Along the Andes, the exchanges of Colombia, Chile and Peru are huddling together in a merger, hoping to boost liquidity and make themselves more attractive to companies seeking capital.

The challenges are steep. In Colombia Jaime Gilinski, a billionaire banker, has made an audacious trio of bids totalling $3.7bn for food company Nutresa, financial group Sura and cement-to-infrastructure conglomerate Argos. Linked by cross-shareholdings, these three firms control as much as half the country’s stock market capitalisation. (Gilinski has said he will maintain the listings but not everyone is convinced).

In Peru and Chile, private pension funds have been a key source of stock market capital but these are falling from favour under leftwing governments. Populist congresses authorised early pension withdrawals in the pandemic, creating an overhang of stock in local companies as the funds sold international assets first to meet redemptions.

Brazil, the region’s biggest market, experienced a boom from 2017 as falling interest rates helped quintuple the number of retail investors and IPOs soared but the party is now over. Values have slid and there has not been a single new issue this year.

The problems of Latin America’s bourses go beyond normal market gyrations. A decade of slow growth, weak currencies and bad headlines have spoilt equity investors’ appetites. Latin America had shrunk to just 6.4 per cent of MSCI’s global emerging market stock index at the end of 2021, less than a third of its weight in 2010, according to calculations by JP Morgan. The Abu Dhabi sovereign wealth fund, the world’s third largest, closed down its Latin American equities team in May. Wall Street banks have cut back on research.

A few hardy optimists remain. Pablo Riveroll, head of Latin America equities at Schroders, says his firm is overweight in every country except Mexico and reports “more interest in the region than in a long time”.

Others are eyeing nervously the election of a wave of leftwing presidents. If the polls are right and Luiz Inácio Lula da Silva returns to power in Brazil this October, Latin America’s six biggest economies will for the first time all be governed by the left. 

Some of the new leaders are promising big tax rises, tighter regulation and a larger state. Boosting stock markets is not a priority. The ride for companies in the region may be about to get a lot bumpier.

michael.stott@ft.com