Region Braces for More Volatility

LatAm countries and corporates are comfortably positioned to weather the volatility sweeping across the globe, but capital market activity will be slow to return given the overarching uncertainty, said bankers and government officials on the sidelines of the IMF meetings in Washington this weekend. Indeed the region has already started to feel the effects of such nervousness, with the Brazilian real and Mexican peso for the first time taking a considerable hit in recent days, and bonds spreads widening in response to higher risk aversion. “It is another indicator, another milestone in this process,” said a senior banker. “I do think we are going to have to look anew at LatAm issuance, which has been relatively resilient. It proves yet again that decoupling is just not a word worth thinking about.” All eyes are currently on Europe and whether governments there can follow through on promises and plans to contain the debt crisis in the Greece. “Hopefully the different measures that the Europeans are putting in place start filling some of the gaps,” said Alejandro Diaz de Leon, Mexico’s head of public credit. “The huge question is whether the measures …are enough that we don’t go into the abyss.” Still confidence in LatAm is largely high given how it has already been stress tested several times over the last decade or so. It is also a region that withstood the global turmoil in the wake of the Lehman collapse and saw economies rebound rapidly. “The one region that has experienced the most crises and is the most battle tested market has always been Latin America,” says Robert Abad, a senior analyst at Western Asset Management Co. (Wamco) “For anyone who is positioned defensively or for normalization, LatAm is where you want to be.” Despite that, bankers say market volatility will clearly have a spillover effect on economies across the region and weigh on capital markets and lending activity in the short-term. Bankers may have large pipelines but for now they are largely