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What is happening on the Colombian Stock Exchange?

Regarding the fall in the stock market, a situation that triggered a drop in the share price of well-known companies, Campus undertook the task of investigating Maria Teresa Macias, Head of the Finance Department of the International School of Economic and Administrative Sciences of the University of La Sabana, about what this panorama may mean.

By. María Alejandra Gómez

After learning of the report issued by JP Morgan, in which the MSCI Colcap index of the Colombian Stock Exchange could leave the emerging market and become classified as a frontier market, there was a sharp drop in the shares of the most important companies in the country that had not been seen since the times of the pandemic.

María Teresa Mancera, head of the Finance Department of the International School of Economic and Administrative Sciences (EICEA) of the University of La Sabana, explained what the differences are between both market categories and what implications this rating may have for Colombian businessmen and the country's economy.

What is the MSCI Emerging Markets Index and what are the implications of Colombia being reclassified as a frontier market?

The MSCI Emerging Markets Index gathers data from large and mid-cap companies from 26 countries in Emerging Markets. A frontier market is a lower classification than emerging markets. This classification corresponds to economies with less development and greater internal problems. If we are reclassified in this category, this will cause strong investor outflows from the country and less visibility.

What benefits does being classified as an emerging market have for the country?

Being in emerging markets means belonging to an economy that is in the development and growth phase, closer to becoming a developed economy, but it would still have some issues to resolve. Of course, if there is investor confidence, this means greater capital inflows into the country and thus better macroeconomic results.

How risky is it to invest in frontier markets?

For any investor, it is definitely a thousand times better to invest their money in emerging countries. Solving the problems that are affecting a country and that prevent it from becoming a developed market is difficult. If you are referring to investors interested in a frontier market, then they are investors who take on very high risks. In itself, JP Morgan's announcement generates too many alerts and it is not so common for someone to want to put their capital in a country that is generating all these alerts.

What repercussions can the fact that these prices are falling have? What could be the short and long-term consequences?

Poor results of banks. This is one of the biggest problems, poor results, deterioration of the portfolio, rates for free-use loans at rates higher than 20%. This can translate into a lack of liquidity in the country's productive sector, a sector that comes from very hard times after the strikes and the pandemic. In addition, the decline in the construction sector, reinforced by the disincentive of the tax reform on AFC accounts, prices of materials and high rates on mortgage loans, is materializing in a liquidity mismatch in several banks.



How to invest in the stock market with little capital
To start investing in the stock market, it is highly recommended to start little by little, without rushing and with the aim of gaining experience and training. In order not to put your financial health at risk, it is best to start with small investments and even have the help of a financial advisor.



Stock market investment is a complex field that requires numerous ingredients to aspire to success. Before analyzing what they are, it is worth clarifying that any small saver has the doors open to be able to invest in stock market securities.

The stock market is a place where the most expert and wealthy investors, as well as the most novice and small, meet every day. For all of them, the stock market has the same rules. And everyone has their space to be able to operate according to their possibilities and the objectives they have set. It is worth clarifying that you can start investing from the most modest budget, with no lower limit.

Invest only the capital that we can afford to lose
Even if the amount to be invested is modest, it must be kept in mind that it cannot be capital or money that will be needed in the near future. It is recommended not to invest in the stock market until you have ensured coverage of current expenses as well as an emergency fund for unforeseen events that may arise. Therefore, the amount to be invested will consist of an amount that, if necessary, we can afford to lose without causing any financial imbalance, or hold the investment for a long period.

What is trading and what are the requirements for trading?
Trading consists of the purchase and sale of listed assets. It is usually carried out in liquid and electronic markets and involves high risks. Having a good training in this regard is a necessary condition, although not sufficient, to be able to operate successfully in the markets.
It is usual for a novice investor to have very little stock market knowledge. Due to this aspect, a certain investment in specific training is recommended before starting out.
How to train to invest?
The investment in training does not have to be financial, it can be time: the Internet is an excellent “university” to acquire knowledge, see, hear and share experiences, read experts, learn on many free training websites, etc.
The possibilities for training today are very numerous thanks to the courses, both in person and online, that exist, the books and manuals published and so much valuable information that can be found on the Internet.
Whether you invest in some prior training or not, some banks with which you are going to carry out operations make available to the client expert professionals in stock market matters who are very useful to overcome the difficulties of the complex world of the stock market.
The time and money spent on training will depend on the intention and possibilities of the future investor, but there are no longer barriers to access free stock market education online or in person.
The media offer daily analysis of the markets by independent experts that are useful both for day-to-day monitoring and for training itself. This information is a good complement to the advice of the bank manager.
Invest only the capital that you can afford to lose
Even if the amount you want to invest is modest, you must keep in mind that it cannot be capital or money that you will need in the near future. It is recommended not to invest in the stock market until you have ensured coverage of current expenses as well as an emergency fund for unforeseen events that may arise. Therefore, the amount to be invested will consist of an amount that, if necessary, we can afford to lose without causing any financial imbalance, or to have the investment for a long period.
INVESTMENTS
What is trading and what are the requirements for trading?
Trading involves the purchase and sale of listed assets. It is usually carried out in liquid and electronic markets and involves high risks. Having a good education in this area is a necessary but not sufficient condition to be able to operate successfully in the markets.
It is usual for a novice investor to have very little knowledge of the stock market. Due to this aspect, a certain investment in specific training is recommended before starting out.
How to train yourself to invest?
The investment in training does not have to be financial, it can be time: the Internet is an excellent “university” to acquire knowledge, see, hear and share experiences, read experts, learn on many free training websites, etc.
The possibilities for training today are very numerous thanks to the courses, both in person and online, that exist, the books and manuals published and so much valuable information that can be found on the Internet.
Whether you invest in some prior training or not, some banks with which you are going to carry out operations make available to the client expert professionals in stock market matters who are very useful to overcome the difficulties of the complex world of the stock market.
The time and money spent on training will depend on the intention and possibilities of the future investor, but there are no longer access barriers to free online or in-person stock market education.
The media offer daily market analyses by independent experts that are useful both for day-to-day monitoring and for personal training. This information is a good complement to the advice of the bank manager.
Things to consider before investing in the stock market
Before getting down to business, you need to be clear about three things. How much you want to invest, how long you are willing to hold the investment, and what percentage of loss you are willing to assume if the investment starts to go wrong.

Keys to investing in the stock market online
The advancement of technology allows anyone from home to invest in the stock market online. There is no doubt that this fact has democratized access to different assets and markets, but it is necessary to take some precautions to operate without problems in this area and get the most out of your savings.

Another determining aspect when investing in the stock market, and even more so if you start with small amounts, is knowing the impact that the commissions associated with the investment will have on profitability. There are several types of commissions:

Buying and selling commissions: these take place every time a security is bought or sold. They usually range between 0.20% and 0.70% of the transaction amount and depend on the intermediary hired. There are two different commissions that are borne in the purchase and sale operations. On the one hand, the commission that the 'broker' takes and on the other, the commission that corresponds to the Stock Exchange where the securities are negotiated.
Securities custody commissions: these are commissions charged by the depositary entity for the cost of maintaining the shares in the portfolio. According to the regulations, the commissions are calculated on the effective value of the shares. If the set of securities belongs to the national market, the commissions are around 20% with an annual minimum of about 12 euros and if they are from the international market, the percentage increases to 1% with the minimum being about 60 euros. However, this commission is increasingly linked to the level of operation, being free in many cases when the investor is active in buying and selling. Commissions for collecting dividends: each time a dividend is collected on shares, the entity charges a commission of a percentage, with a minimum that is usually slightly higher than 1 euro and that varies according to the broker.
Commissions for capital increases: the commissions in this case are similar to those in the previous section.
Four simple tips to start investing
In the first investments with little capital, it is important to make an approximate calculation of how the possible profit of a transaction would be affected by the different commissions.
It is highly recommended to set a loss control order or 'stoploss' in advance, which generates an automatic sale if the share price falls below a certain level or price, which allows us to meet our objective of maximum acceptable loss and thus avoid unpleasant surprises.
It is advisable to diversify the portfolio by incorporating more than one security, both to avoid taking a risk in a single security, and to avoid having to remain immobile in a security for too long if it falls. The greater the diversification, the greater the distribution of risk among the securities.
Investing with a short time horizon implies a greater risk and usually leads to more aggressive behavior on the part of the investor, so it is advisable that the investment be made in the long or, at least, medium term.
Finally, it must be made clear that in the stock market it is not advisable to pay any attention to rumours since their origin is dubious and their content may have nothing to do with the reality of what is going to happen, with the enormous cost that this may entail.
How does the stock market work?
Understanding more about how the stock market operates can help you better navigate what you do when you read the headlines.

If you're like a lot of people, you may not pay attention to daily economic indicators, such as gross domestic product or industrial production.

One measure that likely influences how you think and feel about the economy is the stock market. Ups and downs, especially in recent years, are often seen as indicators of our shared financial prospects and the broader economic outlook.

Here are some basics.

How are “markets” defined?
Dow Jones, S&P 500, NASDAQ, NYSE: Those are probably the ones most cited by the media, but they don't all represent the same things. The world's largest economic centers each have their own stock and bond markets. For example, in the US, the New York Stock Exchange (NYSE) is one of the country's stock exchanges, where buyers and sellers of company stocks trade with each other. There are digital markets where the buying and selling of securities is done on a fast, computerized and transparent system, such as NASDAQ (National Association of Securities Dealers Automated Quotations).

Then, there are stock market indices. The Dow Jones and S&P 500 are two of the most common, which track a group of component stocks in a broader market. Investors can buy and sell debt securities, i.e. bonds, issued by companies, governments and municipalities, also traded on the stock exchange and included in stock market indices.

The Dow Jones Industry Average (DJIA), for example, is a weighted average of the stock prices of 30 U.S.-based companies. The companies that make up the Dow change over time, as does their relative value in the Dow index, which is based on the respective companies' shareholdings. As a result, some companies have a larger market share and, consequently, a larger value in the index. If the Dow rises for the month, that means the average share price of those companies in that average also rises.

Indexes can be sector-specific like the Dow Jones Transportation Average (DJTA), which includes 20 companies in the transportation sector, such as trucking and airlines, or they can represent the size of a group of stocks like the Wilshire 5000, which tracks the performance of the U.S. stock market as a whole.

Japan has the Nikkei 225 Index, which trades on the Tokyo Stock Exchange, and Germany has the DAX (a 40-company stock market index), which trades on the Frankfurt Stock Exchange. “Stock market indices are just different ways to combine investment opportunities around the world and here in the U.S.,” says Heather Winston, financial professional and product director for Retirement income solutions at Principal®.


On the regional integration of the Colombian, Chilean and Peruvian Stock Exchanges

The project to integrate the Colombian, Chilean and Peruvian Stock Exchanges to create a regional entity known as the "Regional Holding" is a joint effort between these three countries with the aim of strengthening Latin America's position in global financial markets. This initiative involves merging the assets and operations of the exchanges into a single entity, which will allow investors to access a larger and more diversified market.
The integration process had its latest update through an official announcement on August 31 of this year, representing a significant milestone in the evolution of financial markets in Latin America. In this way, the ambitious project continues its path towards Integration. The general manager of the Regional Holding, Juan Pablo Córdoba, emphasized that the integration of the Colombian, Chilean and Peruvian stock exchanges is a convergence process that seeks to unify operations in three currencies. This convergence process is expected to culminate in the first half of 2025, after a period of approximately 18 to 24 months dedicated to the creation and corporate integration in a single body for the three countries.
The creation of the Regional Holding was recently approved at an extraordinary shareholders' meeting, with the purpose of becoming one of the most prominent stock markets in Latin America. The board of directors in charge of leading this long-awaited project is made up of representatives from Colombia, Chile, Peru and Brazil, and Juan Andrés Camus has been appointed as chairman of the board, while Juan Pablo Córdoba has been ratified as general manager.
In the Regional Holding, the Colombian Stock Exchange and the Santiago Stock Exchange will have a 40% stake; the Lima Stock Exchange will have the remaining 20%.
In the coming weeks, the steps to follow and the completion of the exchange relationship will be made official. In any case, the operation will include a spin-off by the Santiago Stock Exchange, the creation of the Chilean Stock Exchange Holding Company and the future merger between the company spun off from the Santiago Stock Exchange and the Chilean Stock Exchange Holding Company to create the regional holding company, which will be the owner of the three stock exchanges. When the above conditions indicated in the Integration Framework Agreement (AMI) are met, the subscription process for the first-issue shares of the HBC by the shareholders of the Stock Exchanges that have signed the agreement will begin.
Once the subscription process for the HBC shares by the AMI Shareholders is completed, Extraordinary Shareholders' Meetings of both the SIM and the HBC will be called. The purpose of these meetings will be to make decisions related to the merger of both companies. As a result of this Merger, the resulting entity would become the Regional Holding Company (HR), which will function as the parent company of the Stock Exchanges, in accordance with the provisions of the AMI.
2. Effects and benefits of the regional integration of the Stock Exchanges in the Colombian stock market
The central objective of the project is to increase the liquidity and depth of the stock markets of Colombia, Chile and Peru by merging these markets into one, thus attracting more national and international investors by providing a larger, more diversified and healthier market. In addition to improving the efficiency and competitiveness of the markets, the project seeks to promote entrepreneurship and support the economic development of the three countries involved.
On the other hand, it is relevant to mention the participation of new agents in the Colombian stock market. Thus, the incentive for the participation of new agents in the market will be decisive not only with the objective of attracting investors to promote the growth of the national market, but will also allow investors to diversify their portfolio by allowing them to carry out investment activities in the Chilean and Peruvian stock markets.
In recent years, mergers and acquisitions operations in the country have been reduced in multiple jurisdictions in Latin America. In fact, during the first half of 2023, there was a “23% drop in the number of agreements and a 30% drop in the value of transactions”1. Among others, this reduction has been attributed to the increase in interest rates; political and economic uncertainty; the volatility of exchange rates and market access barriers. On this last point, we consider it pertinent to reiterate the favorable impacts of the regional integration of the stock exchanges, since in the terms of the Colombian Stock Exchange (“BVC”): “The integrated market will create new investment and financing opportunities at a regional level, enabling a single point of access for the regional capital market, creating an attractive market for local and foreign investment”2. All of the above, while complying with standards and exercises of international best practices. Thus, although significant reductions have been found in mergers and acquisitions operations, the benefits of integration will encourage the participation of new actors, generate new business opportunities and implement sophisticated markets that respond to the business needs of investors3. Given the importance of robustness, transparency, price discovery and access to information in the stock market in the face of public acquisition offers (“OPA”) -which are operations specific to the stock market-, the added value that the Colombian market will be able to offer to investors who benefit from the regional integration process that is underway will be studied.
3. Financial regulation in Colombia: OPAs
The Colombian stock market currently represents 3.7% of Colombia's Gross Domestic Product (“GDP”); the Peruvian market represents around 2% of Peru's GDP and the Chilean stock market represents 15% of that country's GDP4. For these purposes, the investment alternatives for investors in the face of the integration of the stock exchanges have been a source of concern in the financial sector, since given the comparative size of the Chilean stock market and the Colombian stock market, it has been considered that the Chilean market would offer better investment options. In this sense, the market integration initiative would favor the growth of the Chilean market while growth in Colombia would not have a sufficiently representative impact.
 
However, without prejudice to the considerations that may be applicable in terms of market efficiencies, we consider it pertinent to highlight the benefits in terms of regulation and legal security that the Colombian stock market would offer its investors within the framework of the integration project that is being developed. In particular, and given the scope of financial regulation in Colombia, we highlight the regulatory development in terms of takeover bids.
Thus, we consider that the regulatory infrastructure of the Colombian stock market is sufficiently robust, which provides legal security to the operations that are carried out in the market. Certain sectors have mentioned that the use of the regulatory and institutional infrastructure in the Colombian stock market will be subject to the participation of “issuing companies and a greater number of participants interested in the market”6. Since one of the objectives of the regional integration process underway is related to the increase in liquidity, depth of markets and openness to the participation of new agents, we believe that the strength of financial regulation will allow attracting new investors to the market interested in the legal security offered by the Colombian legal system and the guidelines offered by the financial sector.
Without prejudice to the legal strength offered by the Colombian legal system, it is necessary to evaluate the integration in light of the legal regime applicable to takeover bids in Chile and Peru. This is especially true with regard to the tactics of defense against hostile takeovers, since “the response of the companies subject to hostile takeover bids and the legality of the protective measures constitute one of the issues that motivate the greatest analysis and discussion in contemporary corporate law”7.
For illustrative purposes, Article 6.15.2.1.19 of Part 6 of Decree 2555 of 2010, which regulates matters relating to takeover bids in the secondary market, is a representation of the regulatory approach to what international practice has called the anti-frustration rule. This regulatory model is based on the obligations of passivity of the boards of directors to prevent operations that have the purpose or effect of frustrating the takeover bid.
In contrast, an approach to defense tactics against hostile takeovers allows for the development of defense tactics that will subsequently be subject to judicial control and review. Although the model has found references in the United States, it is necessary to evaluate the regulatory status in the jurisdictions of Chile and Peru.

Peru
In Peru, section c of article 56 of CONASEV Resolution No. 009-2006-EF/94.108, Regulations on Public Offerings for the Acquisition and Purchase of Securities, approved by the Peruvian Securities Market Superintendency, establishes that: “(...) From the moment they become aware of the possible formulation of a takeover bid, and until the publication of the result, the issuer's administrative bodies must act with absolute neutrality in the face of potential competing bids.” This includes, among others, and as in the Colombian legal system, abstaining from carrying out or arranging any act that is not part of the ordinary course of business of the company and that has the object or effect of disrupting the operation of the takeover bid or favoring any bidder.
However, the aforementioned regulatory provision also establishes that the prohibitions of action derived from the Peruvian law “are in force from the moment the possible formulation of a takeover bid is known and not from the moment it enters into force”9. This last point is important, since preventive measures are allowed through the signing of agreements subject to a suspensive condition consisting of the launching of a takeover bid. These measures, for example, were used in the takeover bid launched by the merger of Cervecerías Backus and Johnston S.A.S. over Compañía Cervecera del Perú S.A.S. in March 2000.
This measure should be studied when evaluating the regulatory framework applicable to the new integration of the stock exchanges, since the determination of a legal framework that provides legal security to investors becomes essential for the development of the market. The above, with special consideration to the restrictive regime of action of the boards of directors in Colombia in response to a takeover bid.
Chile
In Chile, Law No. 19705 of 2000 regulates matters concerning takeover bids and establishes the corporate governance regime. Regarding the applicable standard of conduct as a result of the announcement of an offer, article 207 of Law 19705 refers to the restrictions and obligations of those subject to: (i) the company issuing the shares that are the object of the offer; and (ii) the members of its board of directors.

Like the Colombian legal regime, the regulatory provision promotes a position of neutrality that seeks to avoid the development of acts or operations that have as their object or effect the affectation of the normal development of the offer. For these purposes, the execution of operations such as the acquisition of shares of own issue or the sale of assets are subject to the prior authorization of the Superintendency. Specifically, the article establishes that:
During the entire validity of an offer, it will not be possible to acquire shares of own issue; to resolve the creation of subsidiary companies;

In contrast to the Peruvian regime, the Chilean legal system appears to conform to the Colombian regulatory approach, which is also prevalent in the European Union and the United Kingdom, which consists of avoiding tactics aimed at frustrating the takeover bid through a duty of passivity on the part of the Board of Directors of the target company.

4. Conclusions

The integration of the Stock Exchanges of Colombia, Chile and Peru into the "Regional Holding" therefore represents a significant advance in the search to strengthen the position of Latin America in global financial markets. This ambitious project, supported by a solid regulatory infrastructure in Colombia and a strong regional commitment, promises greater liquidity and market depth in the three countries, which in turn will attract more national and international investors. In addition, the legal security offered by the Colombian stock market is a strong point that will boost investor confidence and the active participation of new agents, paving the way towards a more diversified and healthy market.
This integration not only has the potential to consolidate the "Regional Holding" as a leading player in the global stock market industry, but will also contribute to the economic development of the region; by opening up investment opportunities and encouraging the participation of various actors, positive effects are expected in job creation and economic prosperity in the three countries involved. With a convergence horizon expected for the first half of 2025, this initiative marks a historic milestone in the evolution of Latin American financial markets and their efforts to compete globally.
However, despite the benefits of integration on the development of the securities markets in Colombia, Chile and Peru, we believe that the application of the regulatory regime for securities market operations should be studied with special attention. As studied, the regime for takeover bids and the powers to deploy defensive measures is only one example of situations where regulatory integration may not be sufficiently peaceful. In this sense, in order to consolidate legal security and protect investment, the possible contradictions that may arise on the occasion of the integration of regulatory regimes of the jurisdictions participating in the regulatory integration process should be cleared up.
Ultimately, the union of these Stock Exchanges reflects a vision of regional integration that seeks not only economic growth, but also the consolidation of confidence in the financial markets of Latin America. With solid regulation and a robust regulatory infrastructure, Colombia is positioned as an attractive destination for investors, both local and foreign, and contributes to the promotion of a diversified and competitive market in the region.

Stock markets in Latin America have had a mixed performance over the past decade. Brazil, Mexico, Chile, and Colombia are some of the countries with significant stock markets in the region, but with different levels of development and participation in the global economy. Below, I offer a comparative analysis and current perspectives:
Performance over the past 10 years
Latin American stock markets have been volatile, affected by fluctuations in raw materials, political uncertainties, and economic crises, such as the COVID-19 pandemic. Brazil and Mexico have had a mixed performance; Brazil's Bovespa has shown an upward trend in certain periods thanks to commodity exporting companies, while Mexico's IPC has been more stable, although with slower growth. Chile, with its IPSA index, has shown volatility, while the Colcap in Colombia has faced declines due to the country's dependence on the energy sector.
Market comparison
1. Brazil (B3): The largest stock market in the region, with a market capitalization that represents 50% of the total in Latin America. Its growth has been driven by large commodity companies such as Vale and Petrobras.

2. Mexico (BMV): It occupies the second place, with a capitalization less than 30% of the regional total, but with solid companies in sectors such as telecommunications (América Móvil).
3. Chile (IPSA): Although smaller, the Chilean market is one of the most mature and is known for its relative stability, focused on mining and financial services.
4. Colombia (Colcap): Its capitalization is much smaller, representing around 3-5% of the regional total, and has been affected by the volatility of the oil price.
Outlook for the next 10 years
The projected economic growth for Latin America is modest, between 1.5% and 2.3% annually until 2025, according to the IMF. The region is expected to face challenges from high inflation and political tensions, but with opportunities in renewable energy and digitalization sectors. Markets in Brazil and Mexico could benefit from global trends in sustainability and new technologies, although political uncertainty could remain a risk factor in several countries.
Foreign investments in stocks
The rules for foreigners to invest in stocks vary by country. In general, larger markets such as Brazil and Mexico allow foreign investment with relative ease, although investors must comply with certain local regulatory requirements. There are emerging market mutual funds and ETFs that allow investment in a basket of Latin American stocks, such as the iShares Latin America 40 ETF (ILF), which has had mixed returns in recent years.

Bonds and Financing
Bonds are a key method for Latin American governments to raise money. In countries such as Brazil and Mexico, sovereign bonds are popular with international investors. Rates of return vary, but are typically between 6% and 9%, depending on country risk and monetary policies. In general, bond markets in the region have been more stable than stock markets, although equally exposed to economic volatility.
Risks and Volatility
Investing in Latin American markets carries risks associated with political instability, currency fluctuations and dependence on raw materials. Unlike more developed markets such as the US, Latin American stock markets tend to be more volatile and sensitive to global and local macroeconomic changes. However, more established bonds and sectors (mining, telecommunications) offer some stability.
In conclusion, Latin American stock markets present both opportunities and risks, with a structure that is increasingly accessible to foreign investors. Performance will depend on global and local factors, with Brazil and Mexico leading growth and Chile and Colombia providing moderate stability in comparison.

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