It’s All Blue Skies, Not Bumpy Roads for Latin America 2

Blue skies ahead

Arthur Rubin, Head of Latin America Debt Capital Markets, SMBC Nikko Securities America, Inc., who was recently interviewed by Bonds & Loans, sees all blue skies ahead for Latin America, no bumpy roads. Over the past 18 months, whenever we’ve seen some event causing credit spreads to widen, it has usually been very short-lived, said Rubin. He sees two major tailwinds boosting Latin America to blue skies.

Economic Tailwinds

The rally in copper and base metals is already having a positive spill-over effect on Latin America (ILF). And the markets expect the rally to go on. So, if there is a re-pricing or correction, it may have serious ramifications for economies like Peru (EPU) & Chile (ECH), believes Rubin.

Moreover, governments in both Colombia and Peru are focused on infrastructure. In Peru, Rubin sees a lot of things going on in the power sector, more infrastructural development in the energy refining and power generation space. In Colombia, policy direction is going the right way, and the government is making strides in bringing inflation back down to levels near its target.

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The risk that remains for Latin America currently is of Chinese (FXI) (YINN) growth underperforming. At the end of the day, the rally in commodities owes a lot to the perception that China is back on a more stable growth path. If the pace of growth in China falls short of expectations, it would affect the recovery in commodity prices, and consequently commodity dependent Latin America economies.

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Political Tailwinds

Left-wing leadership, often associated with ‘populism’ as opposed to ‘conservatism’, seems to be taking a back seat in Latin America.

  • Argentina is doing better under the aegis of its new right-wing president, Mauricio Macri
  • Mexico is being led by its right-wing president Enrique Pena Nieto since December 2012.
  • Conservative Michel Temer holds the office of the President of Brazil since August 2016.

In Chile, billionaire Sebastián Piñera of the conservative Chile Vamos coalition is seeking to return to presidency in November this year, as the left-leaning governing coalition is already in disorder.

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