IFR Latin America 2011

IFR Latin America Report 2011
3 min read

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It’s been a good twelve months to be a market outside of Europe and the US. With many developed nations struggling under the weight of public and private debt, most emerging markets have been arousing a lot of attention from growth-hungry investors. But some markets have emerged more than others, and Latin America is definitely home to some of the sexier examples.

InBrazil, the continent has a country that has benefitted from being one of the BRICs – indeed, many say that within the grouping it has by far the best long term-prospects. In Mexico, there is a country with a well-developed debt market that draws the attention of many investors that would not consider themselves consumers of emerging market investment products.

Meanwhile,Argentina has surprised many by being one of the most notable come-back stories in recent financial market history – from basket case to investor darling in little over a decade. Not to mention Chile and Peru, which are regarded as bright prospects by many investors, and countries that are trying to establish themselves as regional financial hubs.

Within the bond space, the recent global success of local currency issues is testament to the interest many now have in Latin America. Investors around the world have had a lot to consider – from the demographic challenges in Europe, to mounting public debt and inflationary pressure across the developed world. Latin America offers something different: commodity-rich creditor countries that some believe will ultimately prove safe havens if confidence in the dollar collapses.

Indeed, Latin American issuers are finding themselves presented with an increasing array of choices. Domestic markets are gaining sophistication and – slowly – liquidity. Brazilian domestic bonds in particular have made great strides to become a viable alternative to US dollar-denominated debt for local institutions, and reforms have been formulated that are designed to encourage the trend. Mexico rivals Brazil as the most developed domestic market, while Colombia, Chile and Argentina see activity in this area.

At the same time, issuance in the traditional US dollar format remains as popular as ever, with Brazil attempting to break last year’s record for international issuance and Mexico also on track for a very respectable year.

The loans market has been a rock that has anchored Latin American corporates in recent years as the fortunes of other asset classes has waxed and waned. While volumes remain well off their pre-crisis peaks, bank lending remains an important form of funding for corporates across the region.

And in the equity markets, things look to be hotting up too. Mexico, already a regional leader in the DCM sphere, is catching up on powerhouse Brazil in the equity space too. Valuations have been high – some argue too high – not just there but in Colombia, Chile and Peru. A number of regional initiatives are also in the offing, designed to stimulate growth in the region, including an MoU between the Lima and Colombian stock exchanges, and the formation of an equity index – Mila – that will have a market capitalisation second only to Brazil’s Bovespa in the region.