JPM Drops Mexico Exposure

JPMorgan is cutting exposure to Mexico credit by selling $1m UMS old 2019s and shifting to market weight from overweight in the model EMBIG portfolio. “While the cyclical rebound and higher oil prices remain positives, we prefer to reduce exposure to low beta credits,” says the bank. On the UMS curve, JPM advises reduced duration exposure by switching out of 2019s and 2022s into 2017s and 2015s. Mexico has modestly outperformed the index (3.1% ytd versus 2.8%), despite digesting $3bn of issuance so far from Pemex and the sovereign, says JPM. The bank favors high yielding countries like Argentina and Venezuela, as well as frontier credits like Belize, the Dominican Republic and Jamaica. JPM also notes that while LatAm high grade credit is not necessarily rich versus the US, there is little scope for outperformance. On the other hand, it sees scope for significant underperformance should credit more generally, and sovereign credit in particular, come under renewed pressure.