This year was shaping up to be yet another record-shattering year for Latin American IPOs but a sharp stock market correction in May and June put paid to any such hopes. Many IPOs have been cancelled over the past couple of months, and the few that have come to market have struggled out of the gate.
The end had to come eventually. The Latin primary equity markets were three times bigger in 2004 than they were in 2003, and then grew by another 50% in 2005. Then volumes in just the first five months of 2006 reached 90% of the total for 2005.
But after the market turned, investors in IPOs disappeared almost overnight. Roughly two-thirds of all Latin IPOs are sold to foreign investors, who have been playing the momentum game in Latin stocks since roughly 2003. Where locals might balk at valuations similar to or even greater than developed-market peers, many foreigners were happy to play any market that grew quickly with low volatility.
All change
Today, everything’s different. “Dedicated emerging-market funds were getting huge inflows, and now they’re getting redemptions and getting very selective,” says Sebastien Chatel, head of Latin equity capital markets at UBS.