LatAm Macro Resilience Limited: BCP

LatAm can sustain deterioration in external conditions, but only for a limited time, says BCP. “After preaching the merits of orthodoxy to emerging market governments for decades, the US is introducing heterodox policies that would make the IMF blanche,” says the shop. “The net effect of the new measures is the erosion of investor confidence and the deleveraging of the global financial system,” it adds, saying that the prospects of decoupling are zero, given the immense size of the US economy. Among LatAm positives are the fact that debt levels as a percentage of GDP are half of what they were a decade ago. In addition, international reserves by the end of 2008 will be twice the 2005 level, while regional current account balances will remain in the black through 2008, despite a decline in commodities. The region will have no major elections in 2008, and the election cycle will not commence until 2010. BCP’s top recommendations are Peru and Mexico. It is neutral Argentina, Brazil and Chile, and underweight Venezuela, Ecuador and Colombia.