LatAm equity funds have resumed the outflow trend. In the week ended November 19, the funds saw outflows of $177m, reversing from the small inflow of $1m seen during the week ended November 12, according to EPFR Global. EPFR global markets analyst Cameron Brandt tells LatinFinance that LatAm equity funds have gone from $41.7bn in early September to $16.3bn on November 19. He explains that the inflows in the week ended November 12 were due to a “flash of euphoria tied to the Chinese stimulus policy” which has since vanished. GEM funds, meanwhile, lost a whopping $835m in the week ended November 19, a lot worse than the previous week, when outflows added up to $196m. Brandt says GEM funds have gone from $704.5bn in the beginning of September to $409.0bn on November 19.
Yearly Archives: 2008
LatAm Equity Funds Take a Beating
LatAm equity funds dropped a massive 23.89% in the week ended November 20 and are now down 66.46% year to date, the worst performance of all world equity funds tracked by Lipper. By comparison, for the week, EM equity funds dropped 17.79% and global small and mid cap equity funds were down 16.17%. On average, world equity funds were down 16.27% for the week and 55.95% year to date, Lipper data shows.
Eletrobras Joins 2009 Bond Pipeline
Eletrobras plans to raise a dollar bond of up to $400m in 2009, a spokeswoman tells LatinFinance. The transaction will occur only if there is a favorable window in the international markets next year, she adds. Tenor depends on market conditions and the deal has apparently not yet been mandated. The Brazilian utility has a budget of $1bn to fund in 2009, and may also consider selling shares to raise cash. It last hit the international DCM market in November 2005, raising $300m in 7.75% 10-year bonds through Dresdner Kleinwort and UBS. This year, it signed $600m A/B loan package in August. Also in the pipeline is Chilean state-owned copper producer Codelco with a $500m-$700m 10-year trade via HSBC and JPMorgan. Codelco has historically brought bonds every year in the fourth quarter, though last year it opted for a tightly priced loan. Expect Codelco to be among the first LatAm bonds out the gate when markets stabilize, likely early 2009, and high grade jumps back in.
Investment Bank Fees Plummet
The LatAm investment banking fee pool has shrunk dramatically this year and further contraction looks inevitable in 2009. Total fees for M&A, ECM and DCM are down 46% so far this year, which is now all but closed for capital markets activity, Dealogic data shows. In the year to November 17, LatAm bankers made $1.069bn in fees from the three core activities, little over half the $1.979bn they had accumulated in the corresponding period of 2007, according to Dealogic. Credit Suisse dominates, with $226.33m in fees, or 21.16% market share, down 38% from last year’s $370.51m (18.72% share) bonanza. The top 5 claims almost 60% of the pool and includes UBS, Citi, Itau and JPMorgan, the same – along with Credit Suisse – as last year’s leading quintet. M&A is the bright spot, with the top 10 advisory shops seeing revenue grow compared to the corresponding period of 2007. Dealogic data reveals total revenue of $479m as of November 17, up from $442m in 2007. Credit Suisse bags the bulk of the M&A pool, with $105m, or a 21.88% share. Last year the top earner was Citi, with $114m in revenue, or a 25.86% share. Next year will almost certainly be worse, senior investment banks at the top firms tell LatinFinance. ECM and DCM will be closed at least for the next few months, and most bankers expect few transactions until the second half of 2009 or later. The outlook for M&A is more constructive, but this is unlikely to pick up the slack of other markets. Banks hope to compensate by diversifying into lucrative liability management and restructuring advisory, but more downsizing looks likely as they adjust to a much leaner revenue panorama.
Argentina Inks Pension Fund Nationalization
Argentina’s senate has approved the nationalization of pension funds, turning it into law. Analysts say the move will bring only short-term benefit to sovereign coffers. Some $24bn in assets will be transferred to Anses, the government social security agency, which according to Goldman Sachs economist Pablo Morra will increase the government’s revenues by around 1.4% of GDP. “This may offset the decline in revenues derived from the pullback in commodity prices and, if spending discipline is maintained, allow the government to remain current on its debt obligations in the short term,” Morra says. However, he warns, this does not eliminate the risk of a sovereign credit event – default or distressed restructuring – in 2009-2011. Shelly Shetty, senior director of LatAm sovereign ratings at Fitch, says that while nationalizing funds will provide additional resources to the government, it also sends a negative signal to investors, making access to local markets even more difficult and adding more pressure to credit ratings. “Argentina has totally shot itself in the foot,” says Christopher Ecclestone, equity analyst at Hallgarten. “This [pension fund nationalization plan] really turned out worse than anyone expected.” The Merval dropped 4% on November 21, the day after the announcement was made. The house approved the nationalization earlier this month.
Pepsico to Invest in Mexico
Pepsico plans to invest up to $3bn in Mexico over the next several years to expand its Sabritas and Gamesa business units. Most of that investment will go to research and development, manufacturing and distribution, marketing and advertising over the next 5 years, says Pepsico Americas Foods CEO John Compton. Pepsico employs more than 40,000 in Mexico.
Ecuador’s Private Sector Deposits Rise
The central bank of Ecuador says that private sector deposits in the country’s banks increased by $95m between October 31 and November 7. Total deposits as of November 7 add up to almost $13bn, says the central bank.
IDB Lends $60m to Jamaica
The IDB says it is lending $60m to Jamaica. The loan is for a 20-year term with a 5-year grace period at a variable interest rate. The funds will be used to finance a reform program to improve efficiency of public expenditure by strengthening fiscal discipline and modernizing its public financial and performance management practices.
Chile Well Positioned For Shock: Moody’s
Underpinning firm sentiment on the fundamentals of the main LatAm economies, Moody’s has placed Chile’s A2 foreign-currency rating on review for possible upgrade and has assigned a positive outlook to the A1 local-currency ratings. “Relative to other sovereigns rated by Moody’s, the Chilean government appears better positioned to manage upcoming challenges,” said Moody’s vice president and senior credit officer Mauro Leos. He adds that Chile is well prepared to limit its susceptibility to financial risks and macroeconomic volatility, as it has a strong banking system and a robust balance sheet. “We will evaluate the extent to which increased foreign asset accumulation by the government has shored up Chile’s resilience to adverse external shocks and increased the government’s ability to deal with future fiscal contingencies, including those that could emanate from the external and the financial sectors,” says Leos. The review aims to determine whether Chile’s sovereign credit profile might be better positioned at a higher rating in order to reflect underlying strengths relative to similarly rated sovereigns that might not be as resilient to the global financial turmoil.
Banxico to Ease Rates in 09: Survey
A Banamex survey of economists reveals a consensus that Mexico’s monetary policy rate will be kept unchanged this year, but fall by 125bp in 2009 to 7.00% from a current 8.25%. The survey also shows that inflation is expected to drop to 3.90% in 2009 from 5.81% this year. Banxico’s inflation objective is 3.00%.