Bovespa on course for recovery

Financial Times
By Jonathan Wheatley in São Paulo
Published: August 13 2009 03:00 Last updated: August 13 2009 03:00
BM&FBovespa is on the way to regaining the trading volumes seen at the Brazilian futures and equities exchange before the global economic crisis hit, according to analysts.
Presenting second-quarter results yesterday, Edemir Pinto, chief executive, said the exchange was "recovering very well".
Operating income was R$420.6m ($229.3m) in the second quarter, a fall of nearly 15 per cent year on year but an increase of nearly 20 per cent from the previous quarter.BM&F Bovespa
Net profit was R$188.1m, nearly 14 per cent up on the R$165.2m reported in the second quarter last year, mainly owing to cost savings including a reduction in staff by almost a quarter.
However, profits were hit by what the company admitted had been the surprising implementation in Brazil of international accounting practices. This resulted in a negative impact of R$137.2m on the company's net profits but with no impact on its cash position. Setting this effect aside, adjusted profit was R$325.4m during the quarter, up by 32 per cent from a year earlier.
The BM&FBovespa was formed in May 2008 through the merger of the São Paulo derivatives and equities exchanges. It has sought international expansion via strategic alliances, most notably with CME Group of Chicago, which holds 4.9 per cent of its equity. This alliance has been an important source of business growth as participants on the BM&FBovespa and the CME can trade instruments on the two exchanges directly.
Bernardo Mariano of Equity Research Desk, a New York research house specialising in equities and derivatives exchanges, said although volumes had picked up only quite slowly, the exchange had had its best quarter in terms of inflows from overseas since Brazil was given investment grade status by leading ratings agencies in April and May last year.
He said those inflows could be expected to continue as investors saw in Brazil a natural hedge against rising inflation around the world.
"There are two exchanges in the world that provide a hedge against inflation, the CME and the BM&FBovespa," he said. "That's because 80 per cent of the BM&FBovespa's capitalisation is related to commodities."
Mr Mariano said some 30 to 50 per cent of daily trading in Brazilian derivatives currently took place over the counter in the US. By introducing new electronic trading technology, allowing such traders direct access to the BM&FBovespa from overseas, the Brazilian exchange was moving to capture that market.
Mr Pinto said information technology being introduced this year would allow the exchange to capture such business within about six months. The BM&FBovespa has already introduced so-called direct market access systems in which foreign clients install their own servers inside the exchange.
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