FROM high-definition televisions to low-tech toasters, Elektra, a Mexican retail chain, flogs every conceivable type of electrical gadget to Latin America’s middle class. The company has made a fortune out of selling even modest products on credit, offering payments in monthly instalments to the millions who cannot afford to buy a washing machine outright and do not qualify for loans elsewhere. Elektra’s growth has been boosted by the Azteca financial-services companies, part of the same group.
No amount of toaster sales could account for the company’s extraordinary performance last year on Mexico’s stock market. After an uneventful six months Elektra’s share price went through the roof (see chart). Healthy profits in eight Latin American countries helped. But a bigger reason for the sudden spike was a severe scarcity of its shares.
About 71% of the company’s shares are held by the family of Ricardo Salinas, a Mexican billionaire. At the time of the share-price surge last year, a further 23% were believed to be tied up in a derivative transaction called an “equity swap”. At the same time the weighting given to Elektra in Mexico’s main stock index, the IPC, had been steadily rising owing to changes in methodology and, later in the year, the delisting of Telmex, Carlos Slim’s huge phone company. Investors trying to match the performance of the market suddenly needed to buy more Elektra shares, and there were not enough to go around. As the shares rose, it only became more important for fund managers to hold them.
The boom made Mr Salinas richer than anyone in Mexico apart from Mr Slim. But there followed a bust when, in April, the stockmarket’s managers announced that they would introduce a new way of calculating companies’ weight in the IPC, in which shares that were not in practice tradable would be discounted. Analysts concluded that Elektra might drop out of the index altogether: in two days Elektra’s value fell by almost $7 billion.
