by Stephan Pouyat, Global Head of Capital Markets and Funds Services, Euroclear

What will it take to get Latin America’s growth engine revving again? I ask the question because, after a strong recovery from the financial crisis of 2008/9, growth rates across the continent have largely stalled.

There are some obvious answers. A pick-up in global growth and a rise in commodity prices would be top of the list. But there are solutions to be found closer to home. Broadening access to capital and expanding investment in infrastructure will be two of the key drivers of future growth.

This is where Euroclear comes in. We are already facilitating big flows of international investment capital into the region. I believe there is a lot more on the sidelines ready and waiting to be mobilised under the right conditions.

Euroclearability’s virtuous circle

Five of Latin America’s markets are Euroclearable and we are in dialogue with leaders in other countries about how we can work together to achieve their capital market objectives.

It is widely recognised that Euroclearability is a major draw in attracting foreign investment. Not only does it represent internationally recognised standards of security and efficiency, it is viewed as a benchmark of a market’s maturity.

Through our work with Latin America’s markets we have built a unique and powerful infrastructure spanning both primary and secondary market activities and combining local and international investors in a single pool of liquidity.

This infrastructure has been highly successful in boosting domestic market liquidity. That in turn has set up a virtuous circle. Sovereign bonds have either been added to, or accorded higher weightings in, emerging market indices – further attracting international investors. With that has come lower bond yields and reduced borrowing costs – something that has been recognised in the study by PwC.

The attraction of these markets has been further amplified by the collapse of interest rates in much of the developed world.

Tapping ESG flows

Across much of Latin America there is a demand to upgrade and enhance infrastructure. Where this can be done in a green, sustainable manner, and directed in line with the United Nations (UN)’ 17 Sustainable Development Goals (SDG), there is a mounting pool of international capital on which to draw.

One of the biggest influences today on the direction of capital flows is the shift towards environmental, social and governance (ESG) investing. The precise criteria may be fluid and ill-defined today but ESG is unquestionably the future from an investor perspective.

That creates a potential commonality of interest where countries are themselves striving to meet targets for the greening of their own economies and the sustainable upgrading of their infrastructure.

This opens up new opportunities for Latin American markets that are Euroclearable. For instance, Chile’s Ministry of Finance issued its first Euroclearable Social Bonds in November 2020 with a record foreign participation rate of 48%. Demand for the peso denominated government social bonds reached 3.1 times the amount offered, and the resources collected will be used to finance local social infrastructure needs such as education, essential health services as well as projects linked to COVID-19.

It is worth mentioning that most of the key managers of ESG capital are also members of Euroclear. Where sustainable capital meets sustainable projects, Euroclear is often the conduit through which that investment passes.

Broadening the issuer base for sustainable market development

Achieving the 17 SDGs set out by UN requires close collaborations between all players across private and public sectors. In particular, beyond governments, government agencies and top corporates, the role of small and mid-sized companies is instrumental as collectively they can make a big contribution to the sustainable development and real economy of local markets.

The reality today is that the capital essential for sustainable development projects is not channelled at the scale and speed required. According to UN, the estimated financing gap to achieve the SDGs in developing countries is between US$ 2.5 – 3 trillion per year. One key challenge specially for small and mid-sized companies in these markets is their limited access to international capital as these companies typically are not in a position to issue securities in the international market.

Although the SDG financing gap is undeniably large, it is not insurmountable especially when put into context of the world GDP of US$ 87 trillion. To that end, we are keen to leverage our aforementioned infrastructure to channel international capital to these domestic issuers.

Our innovative infrastructure allows issuers to issue bonds solely in their local markets - in their local currencies or other Euroclear eligible currencies of their choice – and distribute the issuance to international and local investors alike through our platform. This is a key part of our global distribution capabilities and essential in supporting sustainable market development in the region.

From Euroclearability to sustainability, we have embarked on an exciting and meaningful journey. Together with you, we can all further drive impactful changes in Latin America.

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Euroclearability and Latin America

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by Stephan Pouyat

Global Head of Capital Markets and Funds Services, Euroclear

As Global Head of Capital Markets and Funds Services at Euroclear, Stephan Pouyat cares passionately about aligning the financial sector with moves to accelerate development among the world's emerging economies.