LatinFinance - May/June 2017 - 31

ASSET
MANAGERS
BLACKROCK

US-Mexico trade tensions and a strong run of Brazilian equities are forcing
asset managers to examine their portfolios. BlackRock's chief investment
strategist for Latin America and Iberia sets out his perspective. By Kevin Gray

Changing perceptions

everal themes, including trade
rhetoric between Mexico and the US and
the strong run of Brazilian equities, have
dominated Latin America's capital markets
this year.
Axel Christensen, BlackRock's chief
investment strategist for Latin America and
Iberia, shared his views on those issues and
their impact on BlackRock's investment
strategy, in an interview with LatinFinance.
The following is an edited transcript of the
conversation.
LatinFinance: We've seen a lot of
political noise from the administration
of US President Donald Trump. What's
your view on where things stand? And
has it forced a change in your investment strategy?
Axel Christensen, BlackRock: We've
seen some change in the tone [by the
Trump administration] from a more confrontational to a more "let's try to find a
win-win NAFTA 2.0". That has changed the
perception of financial assets in Mexico.
We've seen, for instance, the Mexican peso
go back to the level it was around the election. The Mexican equity market has been
hitting historic highs. So some investors
have reassessed their views.
I would not go as far as to say investors
are completely relaxed in terms of where
the negotiations might go. Other financial
assets, like fixed income, have not gained
back some of the losses. My interpretation
is that fixed-income investors are starting to
look not only at the risk associated with the
change in the US-Mexico bilateral relationship, but also at what the internal political
situation in Mexico might look like.
Recent polls around the Mexican
presidential election next year reveal some

concern about a change in focus in economic policy. It's early yet, but there is some
concern showing up in some financial assets
in Mexico.
LF: BlackRock has been very active in
Brazilian equities. Do you still see room
for a continued rally? Or is the market
getting too expensive?
AC: Overall valuations are of concern to
the extent that these recovery processes are
never smooth. They have ups and downs.
The process of moving ahead with the
reform agenda will also meet some difficulties now and then, as we're currently seeing
with pension reform.
Our concern is to the extent that the market reflects a price to perfection in terms
of both economic recovery and advancing
on the reform agenda. Yet my colleagues
at BlackRock who invest in Brazil from a
bottom-up perspective, who are looking at
specific stocks, say that they are still finding
interesting opportunities.
LF: We're seeing a lot of debt issuance from Argentina. Are you worried
about the amount of dollar debt issuances? Is investor appetite still robust?
AC: What we're seeing is Argentina's
gradual comeback to the external debt
markets, first by the central government
and now by the provinces. Some corporate
issuers have come to market as well. I would
say they're coming back in a size that is
consistent with the Argentine economy. On
the corporate issuance, some companies
had been postponing investments until
there was a more stable macroeconomic
situation, and that seems to be starting to
happen.
A big chunk of issuances is expected

from a country that has been pretty much
separated from international financing. I
also think there is an interesting element on
the demand for Argentine debt. The government's tax amnesty process is aimed at having Argentines become significant investors
in Argentine debt and in other instruments.
I think we're seeing a combination of the
return of an important issuer in the context
of emerging market debt, combined with
some specific conditions related to the tax
repatriation incentive.
Is it a source of concern? Argentina's
fiscal situation is still in the process of being
resolved. Argentina is still carrying fiscal
deficits that have to be funded by issuing
debt. I think investors acknowledge the
significant efforts from the current government to reduce that deficit. That eventually
means less funding will be required, but it's
a process, and not an easy one.
LF: What's your contrarian call for
2017?
AC: The possibility of a better-thanexpected outcome in the free-trade negotiations between the US and Mexico. NAFTA
has been in place for a long time. Both the
Mexican and US economies have developed
substantially since it was first agreed upon.
Most trade agreements tended to only
focus on the trade of goods. Services between the US and Mexico have been increasing in importance. So to the extent that a
new treaty might include services and also
include issues that are important to the US,
such as better protection for intellectual
property, could be a positive. To the extent
that negotiation is done in an environment
where they're looking to strike the best deal
for both parties, I think it might actually turn
out to be a good thing. LF

May/June 2017 - L ATINFINA NCE.COM 31

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