Contrary to the region, the contractionary monetary policy that the Fed is maintaining to fight inflation would slow down the recovery of the main Latin American exporting economies.
Despite the above, with increasingly complex geopolitics, the region maintains its neutral position with respect to other parts of the emerging world. In the US-China and NATO-Russia conflict, Latam is not an active participant, which may favor asset price action by reducing geopolitical risk.
Investments: looking to the future
From the point of view of economic growth, 2022 and 2023 can be difficult years. The year 2021 had better than expected growth due to the post-COVID recovery combined with tax incentives that will be adjusted in the coming years, slowing down the growth of the region.
Regarding the social and political environment, Latin America is immersed in an electoral supercycle where a leftward rotation is observed in most countries. According to Alexander Wernerformer director of the Western Hemisphere Department of the IMF, the turn to the left is due to a dissatisfaction of the social sectors with the status quo and has nothing to do only with current economic policies.
The uncertainty generated by this electoral supercycle means that Latam cannot fully take advantage of the positive aspects of the external context.
However, Latam has advantages. In the latest World Economic Outlook published by the IMF in July 2022, the institution revised down the growth forecasts in all cases, except for Latam and for developing Europe defined as Russia, which is suffering the effects of the war.
In line with growth projections revised upwards, we expect Latam to compress its risk premium more than the rest of the world. In addition, we expect Argentina to accompany the compression of sovereign bond yields, dragging down corporate bonds.
In this line, within the energy sector, we are recommending an overweight in corporate bonds of Pampa Energy that expire in 2023 and 2026; the of Southern Gas Carrier maturing in 2025; those of YPF 2024, 2025 and 2026; the bonus Pemex 2026 and that of GTC (General Fuel Company) that expires in 2025.
As for the utilities sector, our suggestion is also to overweight bonds MSU Energy 2024 and YPF Light 2026.
Corporate debt strategist at Adcap Grupo Financiero.
Source: Ambito
