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Edited by Geoffrey Poitras
Chapter 10: Latin American Stock Markets: Recent History and Prospects
1 Augusto de la Torre and Sergio L. Schmukler INTRODUCTION Back in the early 1990s, economists and policy-makers had high expectations about the prospects for domestic capital market development in emerging economies and, particularly, in Latin America. Unfortunately, they are now faced with mixed results. Though many still hope for securities markets to develop, the reality is that equity and corporate bond markets in many emerging economies remain highly illiquid and segmented, with trading and capitalization concentrated on a few firms. Stock markets in many developing countries have seen listings and liquidity decrease, as a growing number of firms have cross-listed and raised capital in international financial centers such as New York and London. Debt tends to be concentrated at the short end of the maturity spectrum and denominated in foreign currency, exposing countries to maturity and currency risks, though this trend started to revert somewhat in the mid-2000s. Moreover, government debt has crowded out corporate bond markets in many countries, at least until recently. The state of capital markets looks particularly poor when considering the many efforts already undertaken to improve the macroeconomic environment and reform the institutions believed to foster financial development. In the case of Latin America, the results appear even more discouraging in light of the better evolution of capital markets in East Asia and their rapid growth in developed economies (especially in international financial centers). This disappointing performance has made conventional policy recommendations for capital market development questionable, at best. Policy-makers are left without clear...
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