The stagnation of the amount traded in the Ecuadorian stock market responds to a greater perception of risk in the country, which has led to investment restrictions.
A bell ringing at the Quito Stock Exchange, in September 2023.
After a couple of years of good results, the stock market’s forecast for its performance for the last year came true: there was no growth in 2023. And the expectation for 2024 is no better.
The stagnation of the market is evident in its total traded amount, which reached USD 13,313 million that year, according to information from the Quito Stock Exchange. That means a reduction of 1% compared to 2022, when USD 13,452 million were negotiated.
And the projection for 2024 is discouraging, which could lead to financing problems for companies and the Government, which seeks to settle debts by delivering papers to suppliers, municipalities and prefectures.
“The injection of resources through the stock market is becoming complicated because there is no access to financing sources,” says Fernando Simó, representative of the securities house Ecuabursátil.
Greater uncertainty, shorter deadline
The fall in the amount traded on the stock market occurs despite the fact that the number of companies that traded in that market increases in 2023, including large telephone, banking and mass consumption brands.
So what’s up? There is little interest among investors in long-term or public sector papers.
The deepening of the economic and social crisis that the country has been experiencing since the second half of 2023 has led to less appetite for papers such as bonds (corporate debt), which have fallen 17% in the last year.
Obligations are securities with higher yields, terms that exceed 360 days and whose amortization conditions are set according to the needs of the issuing companies.
“Given the greater perception of risk, as evidenced by the cross death (May 2023), investors migrate towards the short term,” says Ramiro Crespo, president of the Association of Brokerage Houses of Ecuador (Asocaval).
“There is a lack of buyers”
Among the securities that presented negative performance are also: Treasury Certificates (Cetes) and State Bonds, mechanisms that the State uses to obtain financing.
For Crespo, the lower performance of these securities could be explained by the fact that the government did not have liquidity problems in 2023, which is why it did not issue papers.
However, Simó considers that the problem is the lack of investors for these papers.
“The State is solving its debts with bonds, but there is no one who wants to buy. This is because the buyers of these securities are limited: banks, Bank of the Ecuadorian Social Security Institute (Biess) and institutional investors,” he says.
And he adds that there are entities that have restricted their investment in the stock market, due to a series of factors, including higher banking deposit interest rates or prioritization of short-term papers in the face of the economic crisis.
The institutions referred to are:
- Biess.
- Social Security Institute of the National Police (Isspol), after the embezzlement of more than USD 900 million was known.
- Deposit Insurance Corporation (Cosede).
- Social Security Institute of the Armed Forces (Issfa).
- Investment funds, which allocate their resources to banking.
- Bank.
- Cooperatives.
- Insurance companies, which focus on short-term papers.
An alternative for these institutions to invest more is for the State to deliver more liquid securities to its creditors such as credit notes from the Internal Revenue Service (SRI), says Simó.
For his part, Crespo maintains that internal debt must be standardized, that is, make the securities have financial conditions that follow a pattern with respect to interest rates and term. That would allow us to know the formation of prices, which would attract more investors.
Finally, Crespo and Simó say that the stock market needs long-term development, which is achieved with radical reforms.
For this reason, they propose changes that make centralized securities depositaries comply with international regulations and that allow integration with securities markets of the Pacific Alliance and the Capital Markets Association of the Americas (Amerca).
