Latin America’s economies may have reached a turning point, as the countries adapt to lower commodity prices, investors said at the 3rd Latin America Europe Investors Forum (LAEIF), hosted by LatinFinance in London on May 10.
“The growth cycle has bottomed out, particularly in Brazil,” said Graham Stock, head of sovereign emerging market research at BlueBay Asset Management. “They see that policies based on high commodity prices are unsustainable.”
According to Juan Luis Rivera, a partner at Moneda Asset Management, commodity prices have an impact on the region but they do not tell the whole story.
“Ironically, the country that received the biggest windfall was Venezuela, and we all know what shape that country is in,” he said. “It’s not all about commodities. If it was, Venezuela would be in great shape.”
Jean-Dominique Butikofer, head of emerging markets fixed income investments at Voya Asset Management, said Latin America’s economies may have touched bottom, but sovereign credit ratings are still on a downward trend. “And there are more downgrades to come,” he said.
As a result, spreads are widening significantly in the region, Butikofer said. Rivera pointed out that the spreads for high-yield corporate issuers in Latin America stand around 800bp over US Treasuries, compared to roughly 540bp in Asia.
Adrian Landgrebe, chief executive officer at Sagil Capital, said investments in Latin America have to offer higher yields than more developed markets, “or global investors will just take their money back to the US or Europe.”
Landgrebe also said the region offers competitive investments in the agricultural industry but he warned that Mexico’s consumer sector has a lot of downside.
Landgrebe also said Mexico faced political risk from the US presidential elections later this year.