LatAm Debt, Equity Brace for Rocky Weeks Ahead

A repricing of emerging market debt and equity which has shaken markets is set to continue, bankers and investors fear. Mexican equity transactions were battered by choppy markets last week, although bond issues managed to proceed. Latin America’s financial markets will continue to see volatility, gappy price action and thin liquidity, keeping most debt capital markets primary issuance sidelined until more clarity is seen in the markets, especially in US treasury yields, bankers say. Market focus will be on non-farm payroll numbers Friday, and bankers expect a pickup in the US high-grade bond market before primary issuance is seen in emerging markets. Volatility impacted Mexico’s equity markets last week, prompting construction firm Empresas ICA to shelve a secondary offering of Grupo Aeroportuario del Centro Norte (OMA) shares. Corporacion Inmobiliaria Vesta’s follow-on equity sale came in MXP2.49bn ($189m) less than planned after one secondary seller opted out. Banco de Chile, however, managed to sell its third Swiss franc bond, raising CHF125m ($133m) despite fears over mounting volatility. Four Mexican borrowers also jumped through a narrow issuance window last week, though some adjusted their transactions to fit the conditions. “It is hard to characterize the market as stable, but the market has made some progress,” says a senior syndicate banker. US Treasuries yields closed Friday flat on the week at 2.52%, having retraced from this year’s high of 2.6% on June 25. Outflows of $5.5bn from EM debt funds in the week to June 26 exacerbated a sell-off as investors adjusted expectations on the US Federal Reserve’s plan to taper asset purchases. Nevertheless, bankers and investors remain hopeful for a swift recovery. “The sell-off doesn’t have to do with a shift in underlying growth or inflation fundamentals, and hopefully we will get a period of stability which will calm investors and change the more negative dynamic seen over last couple of weeks,” says a senior E