LatinFinance - May/June 2014 - 28

SCORECARD
DEBT
INVESTOR

Investors are returning to Latin American credit after an emerging
markets sell-off made returns more attractive. But their investment choices
are as surprising as not. By Eduardo García

Opportunity in crisis

28 l atinfina nce.com - May/June 2014

©istockphoto

T

he prospect of higher
US rates over the past year saw debt investors reevaluate long-held convictions on
risk-return rewards available in emerging
markets. the geopolitical confrontation in
Ukraine this year seemed to further underline the risks.
Yet the prospect of a longer-term resurgence in optimism around latin america's
economic prospects may not be out of the
question - and even the crisis in Ukraine is
helping investors regain enthusiasm for the
region's relative advantages.
"We're a bit concerned with the current
phase in Russia and we decided to be cautious with the ciS region so, suddenly latin
america has become a very interesting
alternative at a time when latam was also
cheap, because the region was under some
pressure starting from Brazil," says PierreYves Bareau, head of the emerging markets
debt team at JPmorgan asset management.
other fund managers make a similar
point. "With some of the issues that are going on in central and eastern europe, latin
america, de facto, is an increasing portion
of the portfolio," says tcW emerging markets portfolio manager David Robbins.
more specifically to latin america,
investors hope that higher borrowing costs
and lower capital flows to the region will
compel countries, including Brazil, to make
the reforms necessary to move meaningfully towards developed market levels of
income.

DOWNWARD TREND: But investors say the
sell-off from emerging markets has made for
more attractive soveriegn and corporate debt
yields in Latin America

DAVID ROBBINS, TCW

"WITH SOME OF THE
ISSUES THAT ARE
GOING ON IN CENTRAL
AND EASTERN EUROPE,
LATIN AMERICA,
DE FACTO, IS AN
INCREASING PORTION
OF THE PORTFOLIO"
"We're getting into a phase that will be
more challenging. there will be less money
available to make that transformation,
which is probably good because it means
that there will probably be more pressure

to do reforms and to take decisions and it's
usually when you have no choice when you
make reforms," says Bareau. "that's what
we've seen recently with the europeans."
investors are already excited about the
structural reforms being implemented in
mexico, but say that the country's good
economic prospects are already priced in.
they are looking for the next turnaround
and at credits that until now were considered less attractive.
Brazil is an example. Some are confident
that the country will stage a turnaround
following the october election, despite new
doubts over whether Dilma Rousseff will
remain president.
"Brazil has cheapened substantially, and
we think that its quality sovereign debt and
corporate debt look relatively attractive
for investment-grade credit," says tcW's
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LatinFinance - May/June 2014

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