RIO DE JANEIRO -- The Stock Exchange of Rio de Janeiro and the National Development Bank have jointly developed a certificate that allows foreign and local investors to buy -- for the first time -- a basket of popular Brazilian shares.
The approximately $1 billion new basket comprises the issues of 13 mostly government-owned companies. The basket is available through stock portfolio certificates (in Portuguese, recibo de carteira de acoes, or RCA) from the Camara de Liquidacao e Custodia, the clearing and custodial arm of the Rio exchange.
On March 26, the first $360 million worth of RCAs (stocks and put options) were successfully auctioned; that involved $315 million of RCAs and $45 million of put options on the basket.
The remaining $685 million worth of RCAs are expected to go on sale in two additional offerings later this year. Merrill Lynch & Co. serves as market maker.
Similar to American depository receipts, RCA certificates are tradable on the market, allowing investors to buy a portfolio of blue-chip stocks. Those included are among Brazil's best-known stock names: Telebras, Eletrobras and Petrobras; as well as some government-owned banks and government-held stocks of a few large private companies, such as the recently privatized Cia. Vale do Rio Doce, a mining company.
It's hoped the basket of stocks will induce investors to expand their holdings and will enhance overall market liquidity. The coming privatization of Telebras, or Telecomunicacoes Brasileiras S.A., makes the issue all the more urgent.
At present, trading of Telebras' stock consumes about 60% of total trading volume in the Brazilian market. But because Telebras is due to be privatized and split into four companies this year, exchange officials worry stock trading of the spinoff firms will fall short of Telebras' level today. This could lead to lowered overall trading volume unless activity in other issues increases.
Marcelo Salgado, head of product development for the Rio exchange, said: "We've decided to launch Brazil's first stock basket now because we finally found a sponsor and a market maker for it -- and because stock trading of Telebras spinoffs won't be as strong as it is with Telebras today."
The basket already is attracting considerable interest, he said.
"Wall Street investors have been flooding us with calls about the basket," he said. For them, "it is a way to trade virtually the entire Brazilian market . . . in a single transaction."
The basket offers several attractions to foreign investors, he said. It not only enhances their ability to diversify risk but also lets them buy an instrument that represents the leading stocks traded on this exchange. The basket also has fee attractions. It offers the diversification benefits of mutual funds "without having the management fees normally associated with such funds," he said.
Aside from providing a cash-market RCA, the Rio exchange is offering derivative products, including forwards, futures, and options contracts on the basket. In keeping with regulations, non-Brazilian investors can use the derivatives only for hedging their cash-market positions in RCAs.
If the RCA concept catches on, exchange officials hope institutional investors -- including pension funds -- will then sponsor their own baskets.
"Once the culture of trading baskets gets disseminated here, it could take off," Mr. Salgado said.