Fifty-year history of the Ibovespa/Ibovespa: 50 anos de historia.

AutorCastro, F. Henrique
  1. Introduction

    The Bovespa index (or simply Ibovespa) was created fifty years ago, on January 2, 1968. Before Ibovespa, prices of stocks traded on the Sao Paulo Stock Exchange1 (SPSE) were publicized via a daily bulletin2 (Boletim Diario de Informacao--BDI). The SPSE wanted to create an index that had a good representation of the most traded stocks on the exchange. It then adopted for the Ibovespa the same methodology used by the Rio de Janeiro Stock Exchange (RJSE) for its own index, the IBV (Indice Bolsa de Valores) (Leite & Sanvicente, 1994).

    There are two main types of stock market indexes: stock price indexes and investment performance indexes. Investment performance indexes differ from stock price indexes mainly because in their computation all cash dividends and capital gains are taken into account (Fisher, 1966). Indexes such as the Ibovespa and the S&P 500 are examples of investment performance indexes, whereas the Dow Jones Industrial Average is an example of a stock price index. Indexes that track both the capital gains and the distribution of dividends are also called total return indexes.

    Stock market indexes are important for a number of reasons: (i) they serve as a quick proxy for historical market performance, (ii) they are used as benchmarks against which fund managers can measure their performance, (iii) they are necessary to calculate the systematic risk and the cost of equity of firms, and (iv) they reflect investor sentiment. Representation, methodological stability, and institutional reliability are necessary and sufficient conditions for the success of an index (Leite & Sanvicente, 1994).

    It is essential to discuss the political and macroeconomic scenario in Brazil over the last 50 years to understand the path and the performance of the Ibovespa. Inflation in Brazil was very high for many years. Successive governments attempted different economic measures to obtain financial stability and control inflation (some unsuccessfully). Annual inflation rates grew from three-digit figures in the 1980s to four-digit figures until the mid-1990s. As a consequence, zeros had to be continuously removed from the Ibovespa. A total of 12 zeros were slashed from the index from 1983 to 1997.

    This article summarizes the history of the Ibovespa, its portfolio constituents, historical performance, calculation methodologies, and an analysis of how representative the index is of the overall Brazilian economy. We provide contextual material on the Brazilian economy during this 50-year period, covering the years when the country was under military rule, the redemocratization, the stagnation and inflation years, the economic stabilization plans to defeat inflation, and the most recent years.

  2. History

    The first institution in Brazil for dealing in various sorts of merchandise and securities was established in Salvador in 1817. Although it resembled a stock exchange, it was not exactly organized as the ones we know today. The next stock exchange was opened in Rio de Janeiro three years later. All of the stocks traded at the time were issued by Banco do Brasil (Barcellos & Azevedo, 2011). In 1890, president Rangel Pestana founded the Bolsa Livre de Sao Paulo, which lasted only 14 months. A new stock exchange was founded in 1895 as Bolsa de Fundos Publicos de Sao Paulo. It was renamed Bolsa de Valores de Sao Paulo (Bovespa) in 1967 (B3, n.d.). Bovespa merged with BM&F (the Brazilian Commodities and Futures Exchange) in 2008, forming BM&FBOVESPA. Later in 2017, BM&FBOVESPA merged with Cetip Organized Markets resulting in B3--Brasil, Bolsa, Balcao.

    The SPSE started calculating the Bovespa index, commonly known as the Ibovespa, on January 2, 1968. Fifty years after its inception, the Ibovespa is recognized as the most important stock market index in the Brazilian market. In 1962, the now-defunct RJSE (3) developed the methodology for its own index. The index underwent some methodological changes to take into consideration the payment of dividends, stock splits, etc., and in 1967 the RJSE started calculating the IBV (or Stock Exchange Index, in English). The SPSE adopted the same methodology used for the IBV and launched the Ibovespa in 1968.

    The initial constituents of the Ibovespa were 18 stocks from a range of industries: Acos Villares, Cimento Itau, Duratex, and Vale do Rio Doce (materials); Alpargatas, Brinquedos Estrela, Casa Anglo, Lojas Americanas, and Melhoramentos (consumer discretionary); Antarctica Paulista, Moinho Santista, and Souza Cruz (consumer staples); Banco Itau and Banespa (financials); Docas de Santos and Industrias Villares (industrials); Paulista de Forca e Luz (utilities); and Petroleo Uniao (energy). Since 1968, the Ibovespa portfolio of stocks has been rebalanced every four months, always on the first business day of January, May and September. Nine new stocks from seven different firms were added to the index in the first rebalancing period (4). These new companies were the following: Arno (consumer discretionary); Banco Comercial do Estado, Banco da America, and Banco do Comercio e Industria (financials); Cimaf (materials); Kibon (consumer staples); and Willys (industrials).

    Fifty years after the creation of the Ibovespa, a total of 347 different companies have been listed, at some point, in the index. Vale do Rio Doce (currently called Vale), one of the world's largest mining companies, was the only company to be present in all the 150 Ibovespa portfolios from 1968 to 2017. Souza Cruz, a Brazilian tobacco company, also had a long history on the Ibovespa. The company was part of the index from the first portfolio in 1968 to 2015. In 2016, the company was fully acquired by British American Tobacco, was delisted, and consequently left the index.

    Banco Federal Itau Sul Americano, or simply Banco Itau, also had a long history on the Ibovespa. In 1969, the company merged with Banco da America, a bank that entered the Ibovespa on the second portfolio rebalancing, and formed Banco Itau America. The bank was renamed Banco Itau in 1973, and in 1974, it acquired Banco Uniao Comercial, a bank that had previously merged with Banco Comercial do Estado, an Ibovespa constituent in its early years. In 2008, the bank merged with another Ibovespa member, Unibanco, and formed Itau Unibanco. Duratex, a manufacturing company that is part of the same economic group that controls Banco Itau, was one of the 18 initial constituents with a high presence on the index.

    Companhia Paulista de Forca e Luz and Lojas Americanas, after intermittent periods on the index, were still part of Ibovespa on its 50th anniversary. Industrias Villares was the elevator and escalator arm of the Villares Group. The company was acquired by the Swiss company Schindler in 1999 and was delisted in 2003. The company had a continuous presence on the Ibovespa from 1968 to 1987. Acos Villares was the manufacturer of steel in the Villares group until 2000, when it was acquired by the Spanish group Sidenor and then renamed Villares Metals. In 2004, the company was sold to the Austrian group Bohler-Uddeholm. Later, in 2011, the company was eventually acquired by the Brazilian group Gerdau and was delisted from the SPSE. Acos Villares' shareholders received one non-voting preferred share of Gerdau for every 24 voting common shares they held at the time.

    Alpargatas went public in 1913 and was still publicly traded in 2017. The company was a member of the Ibovespa until 1997, when its trading volume eventually declined. Brinquedos Estrela had a similar fate. The company went public in 1946 and, like Alpargatas, was still listed in 2017. The company eventually left the index in 1996 when its trading volume declined. Melhoramentos, a company in the publishing business, went public in March 1947. The company was a constituent of the Ibovespa for only 12 portfolios in the early years of the index.

    Antarctica, a beverage company, was a member of the Ibovespa until the mid-1970s. After merging with Brahma to form Ambev in 2000, the company returned to the index. Banespa was a regional bank from the state of Sao Paulo that was privatized in 2000, when the Spanish bank Santander won the bidding for Banespa. The bank was a regular constituent of the Ibovespa, being left out of the index portfolio in just two occasions until its privatization. Casa Anglo, a company that operated department stores, was a regular member of the index until 1986. In March 2000, the company was delisted after declaring bankruptcy. Cimento Itau (5) was in the index portfolio until 1997. The company eventually went private in May 2004.

    Docas de Santos was founded in 1892 to operate the Port of Santos concession. The concession contract was granted by the imperial government of Brazil to Gaffree, Guinle & Companhia in 1888 for a 39-year period. In 1890, with Brazil then under republican rule, the concession contract was extended until 1980. The concession was transferred to Docas de Santos in 1892. With the end of the concession, Docas de Santos changed its name to Docas and established itself in the management of companies and enterprises industry. The company was a continuous constituent of the Ibovespa from 1968 to 1982 and appeared on the index portfolio for the last time in 1987. Docas was delisted in May 2014.

    Moinho Santista, founded in 1905, was a company engaged in the trading and milling of wheat, with Bunge & Born as a minority shareholder. The firm was a continuous constituent on the Ibovespa until 1991. In 1994, the company was turned into a cement and textile holding company. In 2000, Moinho Santista merged with Ceval Alimentos, a subsidiary of the Bunge group. Petroleo Uniao was a member on the Ibovespa portfolio only until 1974, when it was acquired by Petrobras. Figure 1 shows the timeline of the 18 initial constituents of the Ibovespa portfolio in its fifty-year history.

  3. Historical performance

    When first published, the index was set to 100 points...

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