Analysis-Mexico's main stock exchange exodus gathers pace with Monex exit

© Reuters. Mexico's stock exchange building is pictured in Mexico City, Mexico, February 27, 2020. REUTERS/Edgard Garrido

By Carolina Pulice and Kylie Madry

MEXICO CITY (Reuters) - Mexican brokerage Monex has become the latest in a stream of companies delisting from Mexico's stock exchange, underscoring the struggles of the Bolsa Mexicana de Valores not only to lure IPOs but also to stanch a steady exodus.

Monex attributed the exit, which shareholders approved Tuesday, to the costs associated with listing on the exchange.

"We only put the company on the stock market to show investors things we were doing. But (the exchange) was not a financing vehicle for us," Monex Chief Executive Mauricio Naranjo told Reuters.

The planned exit follows similar announcements from retailer Grupo Sanborns in July and Mexican airline Aeromexico in June.

While the latter company's exit was the product of an unusual circumstance - its restructuring process coming out of bankruptcy - the carrier has said that when it does re-list, it expects to do so on the New York Stock Exchange.

Although the companies stated different reasons for their respective departures, the move is seen by analysts as a reaction to a weakened market.

"Companies are delisting because valuations are low, with the Mexican market in general being very cheap," said Valentin Mendoza, an analyst at wealth management firm Actinver.

The benchmark S&P/BMV IPC index has an average price/earnings ratio of 10%, according to Refinitiv data, while the S&P 500's trades at 20 times earnings. To be sure, its Latin American sibling, Brazil, has a 6.13 P/E ratio, indicating that part of the valuation deficit may be regional and not unique to Mexico.

Around 10 companies, including dairy corporation Lala and paper producer Bio Pappel, have left the BMV or announced plans to do so in the past year, and the exchange has failed to attract a new listing since 2017.

The exchange's chief executive told Reuters in July that he was "worried" about its failure to attract companies.

The exchange's second quarter average daily trading volume was 19.2 billion Mexican pesos ($961.06 million), nearly one-sixth of Brazilian exchange B3, which averaged 28.8 billion reais ($5.64 billion) for the same period.

"It speaks to the perspective that businesses have of the market, and it's not very flattering," said Carlos Fritsch, director of Mexican firm Prognosis.

Mexico's slow economic recovery after the initial battering of the coronavirus is partially to blame for the weakness, Fritsch added.

Mexico's economy has been essentially flat since 2019, according to World Bank data, lagging even Brazil, which grow 1.2% since then and compared with 2.2% for the U.S., which spent more aggressively on stimulus.

President Andres Manuel Lopez Obrador has also scared off investors by championing more state control over some sectors, Fritsch added.

"There's a perception that this administration is not business-friendly," he said.

"The Mexican market has been concentrated with just about a few companies, it is an exchange without much operation and companies believe they are not being valued with the correct price," said Raul Feliz, an associate professor at Mexico's Center for Economic Research and Teaching (CIDE).

Feliz said more companies were likely to delist in coming months.

The Mexican stock exchange's market cap in 2021 represented 35.64% of the country's GDP, while the Brazilian stock exchange represented 50.99% in the same period. The U.S.-based NASDAQ and NYSE exchanges combined represented 221% of the country's GDP in 2021, according to World Federation of Exchanges and World Bank data.

"It's a vicious cycle," said Fitsch, explaining that Mexico's smaller market lacked the "critical mass" of markets like Brazil and the United States.

($1 = 19.9780 Mexican pesos)

($1 = 5.1037 reais)