Latin Finance - December 2008 - 18

market predictions of the year. After it is over, though, he new issue pipeline in the region. The long which Mewbourne views as responsible predicts renewed strength for LatAm queue of high-yield issuers stuck in the policymakers with robust reserve levels – pipeline meanwhile have most pressing and others like Argentina and Ecuador. currencies. funding needs. The corporate universe is more of a “It will be inevitable that the dollar will Stalling on the primary issue front has mixed bag, even within countries that have have to decline against emerging focused attention on the secondary. As the sound policies, Mewbourne explains. A few currencies,” says Booth. strong corporate names will still have LatAm and other EM should eventually crisis presents opportunities to buy, credit access to financing, but those benefit from a rethinking by who can no longer tap – like asset allocators, as the crisis Main LatAm Equity Indices the non-bank financial sector – demonstrates that all countries Trending down with US stocks are risky, notes Booth, who sees may run into trouble, the investor adds. Mewbourne strong long term growth in the 80,000 region. “There’s a difference expects new issuance in the Bovespa Peru IPCBV US DJIA 70,000 coming year to go back to between distressed sellers and Mexico IP C Merval distressed assets,” Booth says, basics, with more plain-vanilla 60,000 adding that the former offerings, as well as structures 50,000 characterizes much of LatAm. that give investors extra With many managers protection. 40,000 Few are optimistic about a underweight, he expects inflows to pick up again over the course resurgence in IPOs. Equities 30,000 will have to wait for a global of 2009. Ashmore has long been 20,000 advising global pension funds to rebound, Booth says, as confidence in the developed allocate at least 35% of portfolios 10,000 markets causes LatAm’s relative to EM. Booth is bullish on currencies value to return. 0 Jan-2007 Apr-2007 Jul-2007 Oct-2007 Jan-2008 Apr-2008 Jul-2008 Oct-2008 “You will see equity and sees private equity and Source: Economatica issuances start to crawl out of other “real” investment – that the ruins in the smaller names without correlation to foreign in 2009,” says Christopher investment or sensitive to EM Debt Spreads Ecclestone, equity analyst at developed-world Argentina flags default Hallgarten. “The big ones vulnerabilities – as doing well. where you could raise $500 “You’ve also got certain places 2,000 where there is value in the fixedmillion aren’t going to happen 1,800 income space,” he says, which he anymore. It’s going to be a EMBI+ EMBI+ Brazil 1,600 marginal market for quite a expects to recover before EMBI+ Argentina EMBI+ Mexico long while.” In Brazil, he sees equities, owing to the latter’s 1,400 a stronger market for mid and correlation with the S&P. 1,200 lower caps that the foreigners 1,000 never went with. Locals Quality Before Location 800 willshift down into names After the credit markets shut more tied to domestic down in the middle of the year, 600 demand. the good news was that many 400 Latin corporate and sovereign 200 issuers of fixed-income had Regional Villains 0 taken advantage of better times “You get very different Dec-2006 Apr-2007 Aug-2007 Nov-2007 Mar-2008 Jul-2008 Oct-2008 to extend their amortization scenarios around the region Source: JPMorgan schedules and strengthen depending on the different cash positions. The downside countries’ dependence on may be an extra-long wait for markets to commodity prices, access to international quality is more important than location, open up. financing, and having good policy in place,” says Pimco’s Mewbourne. “The Catch-22 is that those who have The investor adds that the key is how says Roett. On the prickly end of the access – sovereigns and quasi-sovereigns – the shock affects individual economies. His spectrum are Ecuador, Venezuela and shop’s allocations between regions will not will be those who are the most price Argentina, whose default risk rises as prices necessarily shift, but the bond powerhouse for oil and other commodities sink. sensitive and who have other sources of will focus on higher quality credit across Oil exports have fallen while funding,” says a senior New York-based EM. Among sovereigns, the difference is Venezuela’s domestic consumption has DCM banker. These investment-grade been soaring, says Ricardo Hausmann, names are the credits needed to re-open the clear between Brazil, Chile and Mexico – Spreads (bp) Points 18 LATINFINANCE December 2008

Latin Finance - December 2008

Table of Contents for the Digital Edition of Latin Finance - December 2008