EMTA Forum in Miami - January 17

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

EMTA Miami Panel Reviews LatAm Outlook for 2017

Speakers at EMTA’s Sixth Annual Forum in Miami discussed prospects for Latin America, the potential effects of the Trump administration and the differing directions of the major Latin economies. The event was held on Tuesday, January 17, 2017 and drew an audience of 75 EM professionals. The event was sponsored by MarketAxess, with the additional support of Balanz Capital, BancTrust, Bulltick Securities, Nomura and XP Securities.

Moderator Alberto Bernal (XP Securities) framed the conversation by reminding attendees that 2016 was, “a horrible year in growth terms, but a fantastic year for the EM debt markets…which is an odd combination.” He noted that the year, which began with a dramatic market sell-off related to concerns over China and commodities, had concluded with industry indices returning over ten per cent, despite additional jitters over the surprise Brexit and US election votes.

Kathryn Rooney Vera (Bulltick Securities) addressed the Trump effect on financial markets, observing that investors were focusing on his declared corporate tax plans, rather than election season calls for increased trade barriers and protectionism. Whatever plans the Trump administration enacts probably won’t be felt until 2018, making 2017 a year of transition, she added. Rooney Vera argued that President Trump would likely pursue a modified version of his electoral rhetoric on trade, with some mostly-symbolic renegotiation of NAFTA. China, another huge factor for the markets, would likely focus on stability until the upcoming party Congress, with more stringent capital controls likely to be added.

The unknown agenda of President Trump meant that, in the short-term, it would be a waiting game for EM—and Mexico—in the opinion of Nomura’s Siobhan Morden. Until trade policy became clearer, Mexico was unlikely to find significant investor support, with the MXN continuing to weaken (despite Central Bank action), and its external debt trading at levels below investment-grade peers. Balanz Capital’s Walter Stoeppelwerth argued that, with market herd mentality so strongly against Mexico, it “behooves us all to take a bit of the bet on the other side,” suggesting that a low point could be within sight.

Brazil, on the other hand, was clearly on the upswing from its 2016 nadir, according to speakers. The large, closed economy was less vulnerable to protectionist risk and the Central Bank appeared willing to be more aggressive in rate-cutting than previously thought, Morden commented. She added that past crises in Brazil have proven transformational, and that the Petrobras scandal was helping to end graft as a business norm. Stoeppelwerth stressed the impact of the large rate cuts now expected in Brazil; “that is huge for a credit-sensitive economy.”

As the panel turned to Argentina’s prospects, Hernan Yellati (BancTrust) highlighted the impressive results to date of the country’s tax amnesty, which had exceeded even the most optimistic Street forecasts. Yellati called this return of capital back to the Argentine system as a “windfall” that could now be invested in either real or financial Argentine assets, and eventually become part of the tax base. The next legislative elections would serve as a quasi-referendum on President Macri’s plans, and, with favorable results, additional reforms could be pursued.
The unexpected Macri election victory had prompted a clear shift in investor confidence, noted Stoeppelwerth. He expected issuance from Argentina to be front-loaded, in the first half of 2017. Growth would be pivotal for Macri’s chances in the legislative elections, and the electoral season would start by May, he noted.

Speakers concurred that Venezuela would avoid a default in 2017. Rooney Vera noted that the Maduro administration viewed debt service as key to its hold on power, and she didn’t foresee see any near-term possibility of regime change. Morden noted that capital flight from the country continued, Chinese loans might not be rolled over indefinitely, and suppliers paid in promissory notes would want payments at some point. Investors would be looking to see if coupons due in 1H 2017 would be paid with cash flow, with recent oil pricing being supportive. Yellati argued that Venezuela could once again surprise the market by dramatic outperformance in 2017, as it had in 2016.

As for Latin corporate debt, the largely-commodity driven market was being helped by improved pricing in resources, such as oil, copper and iron ore, Stoeppelwerth noted. He noted that his opinion was also based on a more sanguine view of global growth, and “improved stewardship” at the helm of many Latin countries.