MENA Troubles May Firm LatAm Currencies

Currencies of LatAm countries with strong oil and gas industries could benefit from the turmoil in the Middle East and North Africa as Brent crude prices edge towards $120 per barrel. “We believe high oil prices will be particularly positive for the COP,” says Nomura, adding that the “BRL should be counted among the winners given the huge potential in oil production.” The MXP, meanwhile, “is likely to be a marginal winner,” Nomura says. However, if oil prices rise above $3.50 per gallon – the average now is $3.19 – the US economy may be hurt, affecting growth in some LatAm economies, Nomura explains. “On balance, in the case of an oil-shock-induced global recession, the CLP, MXP and PES are likely to be impacted more negatively than the BRL and COP.” In terms of exposure to a global slowdown, Nomura says Chile, where net imports of oil amount to 5.2% of GDP, seems particularly vulnerable as non-oil exports represent around 35% of GDP. Chile is followed by Mexico (25%), Peru (23%) and Argentina (18%). Brazil and Colombia appear less exposed to a significant deceleration in global growth, as non-oil exports represent less than 10% of their GDP.