After Russia invaded Ukraine in February, Latin America emerged as a safe haven for emerging market investors. But it didn’t last long, forcing issuers to wait to raise new money – or get creative.

When financial markets are in a tumult, investors look for safe havens like gold. That’s what happened after Russia invaded Ukraine in February. Emerging market bonds and stocks suffered a net outflow of capital – $7.9 billion in March, $4.5 billion in April and $4.9 billion in May – for the first time since March 2021, according to estimates from the Institute of International Finance (IIF). Investors took refuge in developed markets, spooked by the global fallout of the war at a time when interest rates and inflation were already on the rise and monetary conditions were tightening.

Through all this, there had been a notion that Latin America could become a haven for emerging market investors. It’s far from the war in Eastern Europe and even farther away from Asia, where tensions between China and the United States have unnerved some investors. Indeed, portfolio flows to Latin American bonds and stocks shot up to $15.2 billion in March from $5.4 billion the previous month, according to IIF.

“If you look just at the equity capital markets, there was a steady flow of international investors into the Ibovespa,” Brazil’s benchmark stock index, says Roderick Greenlees, global head of investment banking at Itaú BBA in São Paulo.

But that soon stopped. After rising 12% in the second half of May, the Ibovespa fell 17% to the end of June. The decline stems in part from concerns about leftist former President Luiz Inácio Lula da Silva winning the October 2 presidential election. But more so, it has been the international concerns that led to a net outflow of $400 million from the region in April and an inflow of $800 million in May, according to IIF.

At first, emerging market investors thought the war would be short, “but at this point, I think people are seeing that the war will probably take longer than expected and inflation will be higher and last longer,” Greenlees says. “If that happens, the disruption potentially will be bigger than we expected or maybe interest rates will not come down as fast as we expect.”


For issuers, the volatility in the capital markets has pushed deals to the back burner.

“After Russia’s invasion of Ukraine, there was this big sell off in the market and it just became much more expensive for sovereigns to issue,” says Carlos de Sousa, emerging markets strategist and portfolio manager at Vontobel Asset Management in Switzerland. “If sovereigns can, they have chosen to stay out of the primary market for a while until the situation improves and they can issue at lower rates.”

On the bright side, most sovereigns in Latin America can wait because they don’t have urgent financing needs and are able to borrow in their own capital markets or from the International Monetary Fund and other multilateral lenders, he adds.

When could sovereigns start selling international bonds again?

That depends on when global inflation starts to come down, allowing central banks to begin reducing interest rates.

An exception is Japan, where inflation has been low for many years. At 2.5% in May, it is much less of a problem than in the rest of the developed markets, such as 8.6% in the United States.

“Japan has kind of stuck to its yield-control monetary policy,” De Sousa says. “Yields there remain lower, which means that the Japanese investor base may be more interested now than they were before into investing more globally, including in emerging markets.”

Mexico is considering selling sustainable bonds in the Japanese market, returning to that market for the first time since June 2019, when it raised JPY165 billion ($1.29 billion).

Another sovereign that could issue international bonds is Peru, while Costa Rica is considering a Eurobond deal, De Sousa says.


Another spot of cheer for some issuers is high commodity prices. Latin America is a major producer of energy, food and minerals, and it has started to benefit from the war as buyers turn their backs on Russia, a huge exporter of natural resources, and look for new suppliers, including to replace the disrupted exports of wheat and other food crops from Ukraine.

In the longer term, the energy transition to net-zero greenhouse gas emissions by 2050 will push up demand for copper, lithium and other minerals for energy storage systems and electric vehicles. By comparison, demand for oil, another major export from the region, is expected to have a shorter period of demand, at 20 years or so, as it is phased out. But during the transition to net-zero, oil prices likely will remain high as producers scale back investment to focus on cleaner energies, reducing supplies of fossil fuels.

“Latin America should do well over the next few years because there are reasonable hints to think that we are going into a new commodity supercycle,” De Sousa says. It may not be as strong as the 2000-2015 commodities boom, “but it will do better than in the last seven years.”

Brazil likely will benefit from the higher prices of its meat and grain exports, as well as of iron ore, helping to offset the higher cost of importing refined oil products, he says.

But the standout winner will be Colombia, as it can benefit from the higher prices of coal, gold and oil, its major exports. The commodity boom will compensate for the risk of holding Colombian bonds, De Sousa says.

Chile, a big exporter of copper, may not fare as well. The country has been in a period of uncertainty since the election of leftist President Gabriel Boric in March. While Boric has been more centrist than expected and is putting an emphasis on fiscal discipline while also seeking to reduce poverty and inequality, there is still the risk of a new constitution that is to be put to a vote in a referendum on September 4. If the more radical-leaning drafters of the new constitution incorporate new benefits and rights for people, this could lead to higher taxes to fund them.

“That may be a source of a much wider-than-usual fiscal deficit and faster accumulation of debt in Chile than we have had in the past,” De Sousa says.

On the corporate side, Argentine agriculture biotechnology company Bioceres Crop Solutions is benefiting from the high commodity prices and concerns about food security, allowing it to use cash to fund its growth instead of having to raise new funds, says CEO Federico Trucco.

In March, Bioceres entered a deal to acquire North Carolina’s Marrone Bio in an all-stock deal valued at $236 million, gaining it new growth opportunities in the United States. The deal has been structured so that Bioceres will emerge with about $100 million of cash in hand when it closes in the second half of this year.

“That gives us enough liquidity to execute on the growth opportunities,” Trucco says. “We don’t need to go to the markets, debt or otherwise, to fund these opportunities except for some of the money for working capital that we tend to secure domestically in each of the markets in which we operate.”

Bioceres has been seeing fast growth with a new fertilizer technology that nourishes crops with 25% of the dose that would otherwise be needed. The technology has gained in demand since the Russia-Ukraine war began to limit global food supplies. The next source of growth will come from its genetically modified drought-resistant wheat variety that helps to increase yields of the crop with less water.

Trucco says the cash in hand and the opportunities for business growth allow it to focus on results, not raising new money.

“I think we are really lucky to be in that position because we understand that that the liquidity premium has gone up and the market has seen some significant deterioration in equity value,” he says.

While Bioceres is not actively looking for new financing or more acquisitions, the decline in equity valuations mean that more opportunities are poised to surface for building a pipeline of assets for future growth “at a fraction of the cost that would otherwise be needed” he says. “I think today is a good time to buy future.”

“I think today is a good time to buy future.” 

Federico Trucco

On the flipside, Mercantil Banco Panamá is taking steps to sell bonds despite the volatility, says Luis Huitron, head of funding and investor relations at the bank.

The Panamanian bank has set up a $100 million bond program and may go to the local market in the second half of this year with a $35 million to $50 million deal in dollars with a maturity of five years, he says. That would follow share sales and a private debt placement that brought in $70 million in May and June.

As the bank grows, it will increase its borrowing to help finance its expansion at home and in Central America, Huitron adds. One option is to do currency swaps in Mexico in the short term, helping to access a larger source of financing than in Panama, where deals of more than $50 million can be hard. The next step will be to sell a bond in the United States in three to five years.

“That would be something more aspirational, but I think we are on the way,” Huitron says. “We want the capital markets to be there for us when growth comes, and we are thinking of this more in a medium-term perspective. Our business plan in terms of growth encompasses the next five to seven years, and for that we want to be able to create this approach with the capital markets so that they are there for us.”


Another trend is to restructure debts. More corporates have been buying back bonds at low prices during the volatility of market conditions over the past few months, while sovereigns have been swapping outstanding bonds for those with environmental, social and governance (ESG) criteria to reduce the interest rates.

“I think sovereigns are testing the waters there to see how they can reduce their borrowing costs by achieving some ESG objectives,” De Sousa says.

In November last year, for example, Belize restructured $553 million in outstanding bonds through a financing arrangement with US conservation organization The Nature Conservancy and pledged to protect 30% of its ocean, enforce regulations for fisheries and draft a framework for blue carbon projects. The deal was about 10% cheaper than if the sovereign had gone to the traditional market for financing, according to TNC.


For issuers, the tension has made them more selective about how and when they tap the markets. IDB Invest, the private sector affiliate of the Inter-American Development Bank, brought forward its issuance to cover a $2 billion funding program for this year, says CFO Orlando Ferreira.

Image: Orlando Ferreira

“I don’t think it was very hard to see that the market environment was going to turn a little more difficult toward the second half of the year,” he says. “And so, we frontloaded our issuances. We’ve already done our benchmark bond for the year.”

Another strategy has been to issue sustainability bonds, helping to widen the lender’s pool of investors. The first such bond was sold in April. It issued $1 billion worth of three-year notes with a coupon of 2.625% after orders peaked at $1.7 billion.

“We have seen a true expansion of our investor base since last year when we started issuing under the sustainable debt framework,” says Ferreira.

“We’ve already done our benchmark bond for the year.” 

Orlando Ferreira

IDB Invest has also been tapping the local markets with smaller deals, including in Paraguay. The next issues could be in Australia and the United Kingdom to bring in another $200 million to $300 million over the rest of the year, depending on how the market evolves, he says.

The fundraising comes as demand for financing from IDB Invest and other multilateral development banks increases, as often happens in hard times like in the global financial crisis of 2008-09.

This has been helpful for IDB Invest, Ferreira says. As larger companies turn to the lender, this opens the door for it to have an impact on in the region, such as by helping women-owned or minority-owned enterprises grow.

“In a volatile environment, the larger companies that normally would have other sources of funding have become a good source for us, or a good conduit for us to get to their supply chains,” he says. “That’s what happens in a crisis environment. We actually do get more demand. But that allows us to be selective from both points of views: impact and financial sustainability.”

There is still a sense of caution that this latest crisis may not play out like others in the past, Ferreira warns.

“One has to be careful as to assume that the past will be a good reference for the future,” he says. “It’s not about fear. It’s about planning and trying to get a better sense of what the market is doing. This is just this year. Next year we still have to fund a program of operations that’s going to be about $4.5 billion to $5 billion, so we will have to go back to the market to fund that program. We didn’t have any problems issuing in 2008 and 2009, if that serves as a reference. But who could have foreseen the aggression from Russia in Ukraine? That’s not something we had in 2008 or 2009. There’s always a new element that causes you to be cautious and look at the market carefully.” LF