Chapter 6. Barriers to Integration in Capital Markets

Abstract

Market capitalizations in the LA-7 (Brazil, Chile, Colombia, Mexico, Panama, Peru, and Uruguay) are moderate in size by emerging market standards; however, continued growth and development will depend on improving liquidity conditions across the region. At the end of 2015, capitalization of LA-7 equity markets was 32 percent of regional GDP, while the value of domestically traded bonds outstanding was about 62 percent of GDP (Figure 6.1). In dollar terms, the largest bond and equity markets are in Brazil and Mexico. Despite solid market capitalizations, low trading volumes are a growing concern. Shrinking liquidity is attributed to deteriorating macroeconomic conditions, high transaction costs, and the outsized role of institutional investors and their buy-and-hold strategies.