COUNT MILTON PASSARO AMONG THE RANKS OF TENS of thousands of Latin Americans who are going online to take control of their finances. Passaro used to put his savings in the bank But when the 27-year-old Brazilian quit his job to pursue a business degree at Universidad Federal do Bahia in Salvador, he needed extra income, so he started trading securities over the Internet. At any one time, he has about US$17,000 dollars in the Sao Paulo market, usually in two or three different stocks. Recent picks include Brazilian telecommunications company Embratel, and Ceterp. His goal: to earn returns of 6.8% every month. "It's risky," he says. "But it's fun."
Warren Buffett wannabes in Latin America--like Passaro--now have several trading services from which to choose. Over the last year and a half, at least nine Latin American companies have started offering stock trading over the web. Buenos Aires-based Patagon.com was first out of the gate, completing the region's first electronic transaction in June 1998, when a Chilean bought shares in Argentine energy concern YPF. The broker now does 2,000 trades a day and racks up about $21 million in transactions a month.
While information about the overall size of the business remains sketchy, it seems a sure thing that the volume of trades and transactions is still small. However, current traders are buying and selling U.S. stocks--made much easier through the Internet--rather than securities from their home markets. And, like almost everything net-related, the rate of growth is astronomical.
Charles Schwab, the granddaddy of the industry, which first offered stock trading via computer back in 1985, plans to open offices in all the major markets across the region over the next year. "Internet usage is growing at approximately four times the rate of growth of all the other markets, and our growth within the region will be a function of that," says Lionel Baugh, Schwab's vice president and regional manager for Latin America and the Caribbean.
Volume may increase if prognosticators prove to be right about the growth of Internet penetration in the region. U.S. market research firm Dataquest thinks the number of Latin American Internet accounts will balloon from 5.2 million at the end of last year to 32 million by the end of 2003. "That's going to lead to the growth of e-commerce--including online trading," says Luis Anavitarte, Dataquest's senior analyst for Latin America.
In Brazil, brokers are opening 3,000 new Internet trading accounts per month, on average. Brazilians jumped in after the Sao Paulo Stock Exchange began offering a home trading system in February. At Souza Barros, another recent startup, the number of transactions has been doubling every month over the last four months. "It's been just spectacular," says Alberto Fonseca, one of the firm's managing directors. There are now six brokerage firms offering online trading, including Corretora Souza Barros Cambio e Titulos, Banco Cidade CCVIVI, Hedging-Griffo Corretora de Valores, Coinvalores, Novacao Corretora de Cambio e Valores and Sociedade Corretora Paulista. Many more are expected to add electronic trading to their offerings.
Patagon.com already has some competition in its home country: Three months after it made its first transaction, Buenos Aires brokerage firm Rava Sociedad de Bolsa launched its own online trading service. In Chile, Santiago-based financial services firm CB Capitales introduced that country's only Internet stock trading service in March, called cb.cl. It's now clearing about 500 transactions a month. While growth across the region has been impressive, the number of Latin Americans trading is still relatively small. The Brazilian firms probably have the most, with Souza Barros claiming 7,000 customers. Patagoncom and Schwab count about 6,000 customers each, while cb.cl has only 750 and Rava, 500.
There are several barriers to mass popularity on par with eTrade and other brokers in the United States. The first is cultural. Many are suspicious of doing anything involving their finances online. Most residents still keep what little savings they have in banks, pension funds or under the mattress. There's also very little in the way of consumer protection in many Latin American countries when it comes to hank accounts and credit cards, leading to a general mistrust of any new financial gimmick.
The second reason is monetary Hit by one economic crisis after another over the last 10 years, most Latin Americans don't have extra cash lying around to buy a computer, much less the money to invest with it.
The third reason is risk. Latin Americans are hesitant to bet even part of their money on the stock market, which many equate with the roulette wheel. Indeed, despite what they read in the U.S. press about 20-somethings making a mint off trading stocks, many are quickly finding out that investing in stocks is harder than it looks. "I just opened up an online-broker account and have learned I have the lead touch:' says one trader, who posted his lament anonymously on the bulletin board of Latin American portal quepasa.com. I bought Lycos, it goes down; I get Dell, it goes down; I get the sure thing, Microsoft, it goes down. Then when I get out of a stock, it goes up. My luck has to change. I do better at Vegas."
But some Latin Americans are becoming more accustomed to investing over the Internet. John Freshel, 41, Brazilian father of two and an executive at Seara, a subsidiary of Bunge International, has been trading stocks on line since March. "I feel comfortable with this:' he says. "My brokerage firm [Coinvalores] provides me with charts, and I can also find quarterly balance sheets, analysis and recommendations. And it's possible to work with this information outside regular trading hours at the stock exchange."
Some are trading to build up their savings. Juan Eduardo Errazuriz D., 30, a civil engineer who works for Canal 13 in Santiago, has put $10,000 into stocks like Intel, Copec and IBM through cb.cl to build a nest egg for his future offspring. "My idea is to save money for the education of my children," he says.
Others are doing it purely as a diversion. Marcelo Pizzolo, 32, who owns a construction firm in Buenos Aires, has been trading stocks on line through Schwab since 1994. Restarted out buying options, but when that got too risky, he moved into stocks. Lately he's been buying into the turbulent technology industry, including such companies as America Online, Compaq and Dell. "It's a very hard hobby," he says. "I never make money."
A small community of these financial cybernauts is slowly forming in Latin America, leading to some lively discussions in the chat rooms and on the bulletin boards of some of the online trading firms, from economic commentary to stock picks to market gossip.
Developments such as these have the new brokerages plotting ways to do more. Chile's cb.cl is looking to offer a diverse portfolio, from mutual funds to U.S. stocks to home mortgages as executives predict a sea change in the way their company does business. "We're changing from a traditional company to a virtual company," says Juan Izcue Elgart, a 35-year-old marketing manager at CB Capitales who initiated the idea a few years ago and is now running the service.
Patagon.com also aims for a pan-regional reach, offering not just stocks, but bonds, mutual funds and other financial instruments. It's in the midst of opening offices in Sao Paulo and Mexico City. "We are trying to be a broad financial services firm," says Constancio Larguia, the 24-year-old president of Patagon.com, who founded the company with a friend while pursuing a business degree at the Universidad de San Andres.
Investors are buying into Patagon's vision. Zsolt Agardy, a wealthy investor in Argentina, gave Patagon.com its initial $1 million in funding for at 51% stake. Chase Capital Partners and Flatiron Partners--which have also invested in Latin American portal StarMedia--have since plopped down $4 million for an undisclosed interest.
Back in Salvador, online trading pioneer Passaro's returns have far exceeded anything he can get at the bank. He's now hooked: After he finishes his MBA, he hopes to move to New York and become an options trader. "To invest in the stock market, you have to be patient, and sometimes you must be a risk taker," he says. "And I like risk."
He's not the only one.
If thoughts are worth pennies, then chat rooms on investment web sites hoard fortunes. As the following excerpts from Patagon.com show, the conversion on Latin American bulletin boards is rich in opinions.
"Hi everybody. Do you want to be rich this week? OK, I suggest: Wit Capital, USA.NET [and] IXL. See you guys. You want more?"
Fagar, 1 June 1999
"Argentina's fixed exchange rate with the dollar won't last long. In some time, this relation will break. Basic reason [is] the budget deficit. Argentina can't hold this relation. U.S. has budget surpluses and the dollar appreciates, while Argentina has [a] budget deficit and its currency appreciates."
Horacio, 30 May 1999
"This message is advice, take it or not. Argentina's stock exchange is near to fall again. I repeat, the MERVAL index will fall very hard, maybe 300 points, maybe less."
Facundo Turconi, 10 February 1999
"You read it here first: Molinos has finally been sold but to Perez Companc, not to the Exxel Group! It happened about three hours ago. Enjoy."
Andres M., 7 January 1999
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