EMTA Forum in Miami - Jan. 19

Attendance is complimentary for EMTA Members / US$695 for non-members. 

Registration for the Miami event is now closed. Please contact Evelyn Ramirez at eramirez@emta.org to be placed on a wait list. 

EMTA Miami Panelists Offer Assessments on Global and EM Outlook

EMTA’s Fifth Annual Miami Forum attracted a standing-room only crowd of over 125 EM market participants. The event was held on Tuesday, January 19, 2016, and was sponsored by MarketAxess, Deutsche Bank, Nomura, Oppenheimer & Co., and XP Securities.

Alberto Bernal of XP Securities moderated the event’s discussion, reviewing predictions from the 2015 Miami event in his introduction. He then noted that EM had entered 2016 in a “fearful fashion,” as fears of a growing Chinese economic slowdown and oil sinking to $28 per barrel had led to continuing outflows.

Bulltick Capital Markets’ Kathryn Rooney Vera summarized her global economic views for the new year. “The outlook for 2016 is very complicated, with the markets pricing in a deflationary scenario with the threat of a recession—although I do not expect one,” she stated. Recent events had made Rooney Vera believe that the Fed would probably not hike again until June, with a maximum of 50 bps in hikes in 2016,…and my prediction is with risk to the downside.”

Siobhan Morden (Nomura) discussed her views for the major Latin American economies. On Brazil, Morden maintained that President Dilma Rousseff would avoid impeachment, while warning that politics “remains a distraction, with no time or plans for reforms, fiscal discipline or confidence-building measures.” While debt prices might seem attractive at the time of the event, “they seem to keep on getting cheaper…with no relief in sight on the economy.”

Morden reasoned that the unexpectedly poor performance of the Mexican peso--Bernal reminded the audience of bullishness a year ago when it stood at 13.5 per USD—was due to the fact that the currency is used as a proxy for risk and the expression of “short” views on EM. Morden cautioned that enthusiasm for Argentina under its new government had already compressed yields, and that the positive headlines could start to slow down. Investors would be wise to remember that President Macri did not control either house of Congress, although progress on the hold-out negotiations appeared to be on track.

Oppenheimer & Co.’s Nathalie Marshik discussed opportunities in the smaller Central American & Caribbean economies. Marshik noted that the collapse in oil prices benefited these countries generally, with the notable exception of Trinidad & Tobago. CAC countries were generally using fewer resources to subsidize oil, and inflation trends in countries such as Jamaica were allowing for central bank rate cuts. Investors in the Dominican Republic should expect volatility in an election year, and despite its “market-darling” status, it appeared that the government was “burnt out” on tax reform actions. Finally, necessity might prove the mother of invention in Costa Rica, with the lack of Congressional authorization to fund its fiscal deficit externally, while Marshik underscored that ratings downgrades were possible.

Moderator Bernal noted that investors were becoming increasingly worried about Colombia. A VAT hike would be difficult to enact when political capital was already being spent on the peace process, and “some luck would be needed if oil is at $28 a barrel at year-end.” Bernal argued that Colombia could avoid a ratings downgrade (which Morden, in contrast, considered “baked in,”), while acknowledging that, despite prior bullishness, he would not recommend Colombia as a 2016 overweight.

Corporate bonds were reviewed by Eduardo Vieira of Deutsche Bank. The asset class was generally feeling headwinds, as a large percentage of issuers were commodity exporters, and fiscal challenges and resulting tax increases were affecting consumption. On the other hand, decreased issuance and cash to short-term debt ratios were positive factors. Vieira did not anticipate refinancing issues generally in 2016, although “2017 and 2018 could pose greater challenges.”

The biggest surprises to panelists over the past year included the collapse in oil prices (and the “denial” of many countries to react appropriately), the worsening of the Brazilian economy, the 8/11 devaluation of the renminbi, the drop in the Mexican peso, the well-managed transition in Argentina’s government, and protracted commodity weakness. In the corporate bond world, Vieira considered the outperformance of Russian debt and the extent of the corruption probe in Brazil to be the most unexpected factors.

Key risks in 2016, according to Rooney Vera, included oil staying at recent dramatic lows (“which would surprise me”), competitive devaluations in Asia should China allow for a dramatic drop of the CNY, or an overly-aggressive US rate hiking policy. Vieira argued that commodity pricing remained the greatest risk for EM corporates, and suggested further downside price movement could not be ruled out. For Morden, Venezuela’s budget numbers “just don’t add up, so the fear is not that they will default—it is that there will be extended negotiations afterwards, as in Argentina.” Marshik questioned if allowances for non-performing loans were being adjusted fast enough in Brazil, while moderator Bernal’s risks included a continued plummeting in oil prices.