Latin American assets have emerged as a haven for emerging-market investors trying to navigate an increasingly volatile global backdrop, buoyed by a roster of oil exporters and greater insulation from tensions in the Middle East.<\/p>\n
Currencies across the region, from Brazil\u2019s real to Argentina\u2019s peso, are among the few in emerging markets that have strengthened against the dollar since the start of the war in Iran. Dollar bonds from oil-rich Ecuador and Colombia have ranked among the top performers in the span, as has Colombia\u2019s local-currency debt.\u00a0<\/p>\n
The US and Iran\u2019s failure to strike a peace deal over the weekend is set to weigh on market sentiment and lift demand for safe haven assets on Monday. With limited visibility on whether a ceasefire agreement reached last week will hold, traders have been expecting Latin American bets holding up under multiple scenarios.\u00a0<\/p>\n
\u201cOur highest conviction trades have been centred around Latin America,\u201d said Anthony Kettle, a senior emerging markets portfolio manager at RBC Bluebay in London, citing Argentina, Brazil and Colombia as examples. \u201cTargeting sovereigns and corporates that either benefit from, or at least are more resilient to, higher energy prices remains one of our preferred themes.\u201d<\/p>\n
The view is shared by Jack McIntyre, who helps oversee US$44 billion in global fixed-income assets at Brandywine Global Investment Management. He has been holding an overweight position in emerging-market assets, primarily through Latin America.<\/p>\n
\u201cThat region will benefit from the diversification of energy sources by Asian economies, as well as renewed interest from the US,\u201d said McIntyre, who has been favoring local-currency bonds.<\/p>\n
The political alignment of some leaders with the Donald Trump administration has shaped how EM portfolio managers approach the region, with a more hands-on US stance \u2013\u00a0the capture of Venezuela\u2019s Nicolas Maduro, the pressure campaign on Cuba \u2013\u00a0expected to have implications for credit markets.<\/p>\n
On top of that, Latin America boasts some of the world\u2019s highest real interest rates, making it an attractive destination for carry traders, who borrow in one currency with low rates and invest in another with higher ones.\u00a0<\/p>\n
BlackRock Investment Institute is positive on hard-currency emerging-market bonds, noting a key index \u201cskews toward Latin American commodity and energy exporters.\u201d The firm also likes Latin America stocks tied to themes such as rising demand for critical minerals driven by artificial intelligence, strategists including Wei Li wrote in a note.\u00a0<\/p>\n
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Commodities<\/strong><\/p>\n Equities too are outperforming EM peers. An MSCI gauge of Latin American stocks is up about three percent\u00a0since the war began, bucking losses of about four percent\u00a0in the broad gauge for developing-world shares.\u00a0<\/p>\n \u201cDebt flows turned negative at minus US$2.2 billion, but equities still attracted US$1.4 billion, suggesting that commodity support and relative carry appeal continued to cushion the region,\u201d according to Jonathan Fortun, senior economist at the Institute of International Finance.<\/p>\n Outflows from Latin America made up less than US$1 billion of a total of US$70 billion withdrawals from emerging-market assets in March, according to data by the organisation.<\/p>\n Still, vulnerabilities remain. Brazil\u2019s high interest rates continue to erode corporate balance sheets, pushing more and more companies into distress. Investors face coin-flip presidential elections with binary outcomes in several countries. Colombia recently had its credit score downgraded on fiscal concerns, while Chile \u2013\u00a0an energy importer \u2013\u00a0saw its currency and bonds lag.\u00a0<\/p>\n \u201cThere are winners and losers in the region,\u201d said Katrina Butt, an emerging markets debt portfolio manager at AllianceBernstein. \u201cOil prices are likely to stay high even with the ceasefire holding, so the oil exporters are the bigger winners,\u201d said Butt, who favours sovereign debt from places including Colombia, Argentina and Panama.\u00a0<\/p>\n Earlier this month, the International Monetary Fund warned emerging markets have become more vulnerable to shifts in global risk sentiment due to its increased exposure to funding from non-bank institutions such as pension funds and hedge funds.\u00a0<\/p>\n In the short term, the unwinding of hedges has sparked sharp rallies across the asset class, but RBC BlueBay\u2019s Kettle remains cautious about taking longer-term positions until there is clearer evidence the ceasefire will hold and lead to broader de-escalation.<\/p>\n \u201cOne key takeaway from the last few weeks of performance is that geopolitical shocks create real dispersion within EM,\u201d Kettle said.\u00a0<\/p>\n by Vin\u00edcius Andrade & Zijia Song, Bloomberg<\/p>\n \t\t\t\t\t\t\t\t<\/p>\nrelated news<\/h6>\n<\/p>\n<\/section>\n