IFM Chapman Felipe CMRoundtable

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Perspectives of Capital Markets in Panama and Central America February 5, 2001 Felipe E. Chapman Chief Executive Officer Bolsa de Valores de Panama, S.A.

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Presentation´s Contents Panamanian and Central American Markets Comments on the Presenter’s Paper Final Thoughts

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Panamanian and Central American Markets Volume constrained by economies’ size Activity mostly concentrated on debt securities Volume dominated by Government and Corporate IPOs

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Primary and Repo markets larger than Secondary marketplace Panama’s 2000 figures: Market volume of US$1.4 Billion Equity volume of US$153 Million Market capitalization of US$2.8 Billion Economy of roughly US$10 Billion Panamanian and Central American Markets

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Critical Issues Over leverage Borrowing does have to change into equity issuance Depending on the market, firms do issue bonds rather than taking loans

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Market Liquidity and Financial Infrastructures Liquidity, liquidity, liquidity, that is the issue The catch 22 effect: no new players for lack of liquidity, no liquidity for lack of new players Larger issuers go to liquidity centers, until they ran out of liquidity too Institutional Investors Their presence is growing, but more are needed Critical Issues

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Critical Issues Private investors Part of their savings stay in the local markets, but face strong competition from foreign markets There is always diversification The role of government Must analyze each market individually For example, Panama’s treasury bill program is setting a benchmark The Role of the Central Bank

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Regulation and Infrastructure: has improved dramatically in the past few years in most of the markets Critical Issues

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Strategy: Building Blocks Increase equity financing and securitization Most issuers still need local markets, so domestic structures need to address these issues Governments do need to strengthen their domestic debt market A larger regional market makes all the sense Strategy

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Strategy: Implementation The leverage problem Good corporate governance Credit rating Strategy

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The financial hub Some domestic markets do have the infrastructure needed Investment links Most important among local markets Secondly with outside markets Value added services could be provided More protection to retail investors is most important Strategy: Implementation

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Privatization programs Must continue Allow and encourage marketplace to participate Government debt market Build an entire yield curve, but have challenge of eurobond market Predictable primary markets Strong secondary market with market makers Participation of retail investors Regional Capital markets and connectivity Strategy: Implementation

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Final Thoughts Must increase liquidity Introducing market makers Interconnecting markets Strengthening secondary markets Attracting foreign investors Standardize regional rules and regulations Bring regulators closer together One currency market More training needed in some of the markets Standardize government debt markets