Capital markets in Latin America vs. the U.S.
Companies face low capital markets penetration in Latin America compared to the U.S., according to LatAmGrowth.
Currently, there are a large number of private and family-owned companies in Latin America that are undergoing generational changes and are open to new sources of capital and looking to create value through expansion and growth, as well as companies owned by local private equity funds that are looking to monetize their investments as they are at the end of their funding cycle.
LatAmGrowth indicates that these companies face low capital markets penetration in Latin America, as evidenced by the low ratio of market capitalization of domestic listed companies to GDP, lagging behind other well-developed capital markets, 37, 39, 39, 68 and 73% respectively for Mexico, Colombia, Brazil and Chile versus 158% for the United States, according to the World Bank.
Often, these private companies in Latin America find it difficult to access late-stage capital, mainly because of the limited size of the local investor base and because local institutional investors tend to prioritize investments through large, established players.
As a result, LatAmGrowth estimates that there are several private companies in the region with valuations in excess of $500 million.
The demographic profile of the Latin American region is favorable, including, according to the World Bank, a large population base of 646 million (roughly twice the population of the United States and a growing middle class with disposable income expected to grow at a rate of 5.5% between 2022-2025, according to the Economist Intelligence Unit (EIU).
Latin America is in the midst of realizing a demographic dividend, with a weighted median age of 31, according to Fitch Solutions, which is 9 years younger than the median for developed markets, according to the United Nations.
This population will reach its peak purchasing power as it enters an optimal age for discretionary consumption.
In addition, these countries are putting their young people to work. World Bank data shows the labor force rising to 315 million in 2019 and 111 million in 2021 with an expected Compound Annual Growth Rate of 0.8% between 2022-2025, while maintaining an unemployment rate of 8.0%, according to EIU.