(Bloomberg) — Latin America is becoming an oasis of stability amid the fall in global bonds caused by a war that is being fought 10,000 kilometers away.
The region's dollar-denominated sovereign and corporate bonds have returned 0.4% since Russia invaded Ukraine in late February, contrasting with a 9.8% loss in bonds in Eastern Europe, the Middle East and Africa and an almost 3% drop in Asian debt, according to Bloomberg indexes. It was also a brutal period for US Treasuries, which suffered their worst quarter of modern times.
Investors have flocked to Latin America over the past month, moving away from assets directly affected by the war. Unlike most developing European countries, the region's major economies do not have strong trade ties with Russia and continue to benefit from the rise in commodity prices as large producers of raw materials.
The recent outperformance marks a turnaround from the first two months of the year, when Latin American bonds were hit by a massive sale of assets from the developing world caused by fears that the Federal Reserve would tighten its monetary policy. Although bonds in the region have since recovered, a large part of the global debt market remained affected, as traders prepared for a series of more aggressive increases in US interest rates.
Energy and inflation
The rise in commodity prices caused by fears of a supply crisis since the war began has led investors to take a special interest in bonds from the region's natural resource giants. The debt market is the only way to invest in state-owned companies such as Petroleos Mexicanos and Chile's National Copper Corporation, which are not listed on the stock exchange.
“Quasi-sovereign oil companies from Colombia to Brazil and Mexico are investment options that we like at the current juncture,” said Kathryn Rooney Vera, director of global macro research at Bulltick LLC, who recommends a buy-and-hold approach to energy credits as “there is more room for growth.”
Although rising commodity prices benefit commodity producers, it also contributes to inflation that is already at high levels in the region. For that reason, investors are also favoring inflation-linked bonds, seeking protection against rising consumer prices.
“We maintain our real rate overweights in Mexico and Brazil,” Citigroup analysts led by Andrea Kiguel wrote in a March 29 report. The bank holds a long position in Mexico's inflation-linked bonds, the so-called Udibonos, maturing in November 2023 and Brazil's NTN-B notes due in August 2024. Goldman Sachs also recommends bets on Udibonos, favoring those that expire in 2031.
Brazil and Mexico are expected to close 2022 with inflation above the upper limit of the target ranges of their respective central banks, according to a Bloomberg survey. In contrast, inflation expectations in other major emerging markets, such as South Africa and Indonesia, are well contained.
Original Note:
Latin American Debt Emerges as a Haven 6,000 Miles Away From War
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
Últimas Noticias
Debanhi Escobar: they secured the motel where she was found lifeless in a cistern
Members of the Specialized Prosecutor's Office in Nuevo León secured the Nueva Castilla Motel as part of the investigations into the case
The oldest person in the world died at the age of 119
Kane Tanaka lived in Japan. She was born six months earlier than George Orwell, the same year that the Wright brothers first flew, and Marie Curie became the first woman to win a Nobel Prize
Macabre find in CDMX: they left a body bagged and tied in a taxi
The body was left in the back seats of the car. It was covered with black bags and tied with industrial tape
The eagles of America will face Manchester City in a duel of legends. Here are the details
The top Mexican football champion will play a match with Pep Guardiola's squad in the Lone Star Cup
Why is it good to bring dogs out to know the world when they are puppies
A so-called protection against the spread of diseases threatens the integral development of dogs
