Analyzing the general context is most significant. On the one hand, and I am sure it has been a very important factor, expectations of lower interest rates for a longer period, explained by downside corrections both on inflationary pressure prospects and on global growth level. A second element has been that Latin-American debt – and here I am mainly referring to Corporate US Dollar-denominated debt – presented a rather high risk premium that makes it quite attractive.

Additionally, when we analyze credit risk, we realize that, in general, companies in the region are “healthy” as far as balance sheets and debt levels are concerned. In spite of lower growth expectations, we have verified a price recovery in other assets, such as commodities, minerals, oil, etc. all of which favor regional economies.

Finally, the improved disposition of investors regarding risk assets has been very relevant. On this last aspect, important capital inflows to emerging markets have exceeded USD 26 billion only considering Mutual Fund fixed income assets.

In an exclusively “Latam” context, the outcome of the Brazilian elections was a booster as great hope is placed on changes focused on stabilizing the fiscal situation and promarket measures, thus leaving behind the negative effects of corruption affairs. As far as Mexico is concerned, market grants some credibility to elected President López Obrador, in spite of fears for a more populist government. Other countries such as Chile, Colombia, Peru, maintain their dynamics and problems in a more normal scope to name it somehow, and always with much interest from foreign investors in their debt assets.

Regarding Argentina, we have seen a more discouraged market as no great advances have been achieved economy-wise. On the contrary, economic figures, since mid 2018 have turned weaker and no improvement is seen as for the first quarter of 2019; on the other hand, restlessness concerning next October elections has taken hold and it looks like the contenders will be the same candidates as of 4 years ago.

On a longer-term overview, conditions remain favorable for this asset class, for sure with ups and downs, as has been the track record of these investments. The challenge seems to be for Brazil taking the right measures. They are heading on this direction, as well as Mexico. Argentina has to move past the elections.

I personally believe that Argentina will face adjustment and belt-tightening periods, however the road taken is the right one and I hope the October elections favor this tide.

Article published in Pulso Trader on May 8th, 2019.