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Introduction

In response to the growing interest in cross-investment

between three South Amercian countries; Colombia,

Chile and Peru, their respective stock exchanges have

been working towards a plan to integrate. This Mercado

Integrado Latinoamericano, or MILA, is an excitingdevelopment and will create the second largest stock

market in Latin America, ater the BOVESPA stock

exchange in Brazil. Integrating will allow each market

resh access to a much wider pool o companies across

the Andean region, as well as to some larger companies

that are listed in specialized exchanges outside o

the region.

Why is MILA so attractive to investors?

It is important to emphasize that these markets are notmerging, but rather integrating a less complex and timeconsuming process. A merger usually involves more

complicated issues such as the harmonization o the tax, legaland commercial codes, which could seriously delay orthreaten implementation.

Investors will be attracted to the enhanced level o liquidityand diversity that MILA will bring, as well as the greatermarket coverage, including access to smaller companieslisted individually on the three exchanges, and lower overallcosts.

Markets that have integrated in the past, such as the Nordicexchanges o Copenhagen, Stockholm and Helsinki into theNASDAQ OMX Nordic, and the Amsterdam, Brussels, Lisbonand Paris exchanges into NYSE Euronext, have shown asubsequent increase in trading volumes and in the number oissuers. The increased number o market participants can

lead to greater diversifcation or investors.

What benefts has MILA had on the region so ar?

Since the integration plans were announced more than a yearago, local investment seminars have been turning their ocustowards companies within these markets, raising the level oinormation available overall. Consequently, analyst coveragein the region has deepened impressively. In each countrythere is a greater pipeline o companies waiting to list thanthere has been in the recent past.

Other improvements that have been made over the pastmonths and years in anticipation o this integration include acost reduction in dealing on the Colombian exchange via localbrokers, brokers integrating across all three countriescreating a single access point or trading, experienced assetmanagers launching local unds, and a longer list o IPOs.Further, the exchanges have been preparing or this event inadvance. As an example, our years ago, Colombia launched aprogram to educate several small and medium companies tolist providing assistance in terms o corporate governanceand how to communicate with the market. There have alsobeen cross listings and even the long-awaited list oprivatizations in Peru such as Petro Peru, as well as thecreation o an Andean 40 ETF und, which is now listed onthe New York Stock Exchange.

Are more companies likely to come to market under MILA?

Since the announcement o the creation o MILA in early 2010,we have seen increased issuance interest in the Andeanmarkets. Colombia had two IPOs in 2010 and the pipeline or

2011 looks very promising, with several listings on the way,some o these signifcantly large. Another interesting trend inColombia is that the increased liquidity we have seen in thelocal market to date, predominantly driven by pension undsand a very active retail market, is attracting back Colombiancompanies that have listed abroad on specialized exchangessuch as the TSX in Canada. To date, Pacifc Rubiales andCanacol Energy have listed on the Colombian Exchange andhave been a resounding success. Oil company, PacifcRubialesis is now the largest by market capitalization in theexchange and Canacol Energy is currently the 12th largest1.In 2011, there are eight more companies waiting to list andmarket participants suggest that there are a couple morewaiting to announce their listing.

In Peru, the list o primary and secondary issues is more

subdued than in Colombia. There are several stateprivatizations that have not yet been completed in the energysectors and at least two IPOs are being discussed in the localmarkets. Presidential elections this year could slow downmarket issuance.

In the case o Chile, 2011 is set to be an intensive year, withalmost US $5bn issuance, compared with US $400mn in20102. New issues will include several Chilean governmentinvestments, such as newly privatized water and electriccompanies, capital increases rom banks, as well asbetween three to six IPOs in the health care, agribusiness andfsheries sectors.

Stacy Steimel, Managing Director, Head o Latin America Equity

and Raael Mendoza, Portolio Manager or Latin AmericaEquity, discuss the stock market integration between Colombia,

Chile and Peru, how this development is expected to beneft

local markets and the investment opportunities that are likely

to ollow.

Latin America Q&AMILA Explored & Explained

Stacy Steimel

Head of Global Latin America Equity

PineBridge Investments, Santiago

Rafael Mendoza

Portfolio Manager, Latin America Equity

PineBridge Investments, Santiago

1 Source: Bolsa Valores de Colombia, February 20112 Source: Superintendencia de Valores, Bolsa de Comercio de Santiago

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Does the integration o these markets now represent a

more compelling investment opportunity vs other Latin

American markets?

The integration o these markets makes or a compellinginvestment case or many reasons, such as the liquidityimprovements, better access to a greater number o smallercap companies listed individually on the three exchanges,greater market coverage, lower brokerage costs, as well as

improved diversifcation.By ocusing on diversifcation and comparing MILA to Mexicoas an example, we can see rom the charts below that thecombined markets o Colombia, Chile and Peru have widersector exposure as they have two additional sectors that arenot represented on the Mexican stock exchange; energy andutilities. While materials are larger and telecommunicationsmuch smaller in the integrated market, Mexicostelecommunications sector is dominated by just one largecompany. With respect to market capitalization, the Mexicanmarket is dominated by large companies, whereas theintegrated markets contain a ar greater number o smallercapitalization companies.

In this sense, given the smaller size, the growth profle isbetter, diversifcation is higher and there is hidden value todiscover, as these companies remain under researched andrelatively uncovered by brokers.

Conclusion

We are excited about the creation o this integratedmarketplace and the broadening investment opportunties

that it will create in the Latin America market. We believethat MILA will provide investors with an alternativeinvestment platorm that di ers in both composition and sizerom the Brazilian and Mexican markets. Moreover, marketintegration is a trigger or the deepening o capital marketsand that is always good news or investors. Finally, the actthat this area is under-owned can oer an important frstmover advantage to those investors with experience in thesemarkets n

Sector Exposure

Market Capitalization (US$ mn)

MILA Mexico

MILA

Consumer Staples3.7%

Energy11.5%

Financial19.0%

Industrial7.4%

Materials34.3%

Telecoms1.5%

Utilities14.7%

ConsumerDiscretionary

8.0%

ConsumerDiscretionary

12.0%

Consumer Staples

25.6%

Financial

8.2%Industrial7.6%

Materials

19.1%

Telecoms27.4%

Mexico

Past perormance is not indicative o uture results.

PineBridge Investments is a group o international companies acquired by Pacifc Century Group rom American International Group, Inc. in March 2010.PineBridge companies provide investment advice and market asset management products and services to clients around the world. PineBridge Investments isa service mark proprietary to PineBridge Investments IP Holding Company Limited. Services and products are provided by one or more afliates o PineBridgeInvestments. Certain middle and back ofce unctions incidental to the services and products provided by PineBridge Investments and its afliates may beoutsourced to third parties. Certain inormation may be based on inormation received rom sources PineBridge Investments considers reliable; PineBridgeInvestments does not represent that such inormation is accurate or complete. Certain statements prov ided herein are based solely on the opinions o PineBridgeInvestments and are being provided or general inormation purp oses only.

PineBridge Investments Europe Limited is authorised and regulated by the Financial Services Authority (FSA). In the UK this communication is a fnancialpromotion solely intended or proessional clients as defned in the FSA Handbook and has been approved by PineBr idge Investments Europe Limited.

Source or charts: Bloomber g as o February 2011. Sector exposure is by market capitali zation.

80-100

5.9%20-40

10.6%

0-20

83.5% 100-12023.4%

40-60

10.1%

20-40

7.6%

0-20

58.9%

March 2011www.pinebridge.com

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