Sudamerica l'area migliore - Moderatore
By: Moderatore on Venerdì 28 Marzo 2003 22:02
J Latin American Markets See Light As Investors Crowd Back
By Mike Esterl DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The sky is no longer falling on Latin America.
Investors fled the famously volatile region last year, spooked by recession and solvency concerns after Argentina's spectacular blow-up in late 2001.
But bond prices have been rallying for several months now as the worst fears subside and market participants go bottom-fishing in a low-yield global environment. And the rally has broadened in recent weeks, with equity and
currency players stampeding back into Latin America after sticking to the sidelines in January and February.
Latin American stocks have surged 5.4% so far this month in dollar terms - the top-performing region in the world and about three times the advance posted in
Morgan Stanley's MSCI World Index. Investors in Latin American bonds have chalked up another 2.8% in returns in March, lifting year-to-date returns to
8.3%, according to J.P. Morgan's Emerging Markets Bond Index-Plus. Investors appear to be placing bets that Latin America, if not immune to fallout from the U.S. invasion of Iraq, might provide a bit more shelter than some of its global peers more entangled in the action.
Turkey, which straddles Iraq, has watched its equities plunge 24% in dollar terms and its bonds plummet 15% since the end of February as the bombs drop over Baghdad. Emerging market stocks and bonds overall are down 1.4% and 1.7%, respectively, so far this month.
"I think to a significant degree in Latin America there are domestic stories unfolding in the wake of international turmoil," said Lawrence Goodman, a managing director at GlobalEqon, an international economic consultancy.
Much of the Latin American run-up can be attributed to Brazil, which cast a huge shadow over the region last year when its currency cratered 35% against the dollar as Luiz Inacio Lula da Silva, a longtime leftist firebrand, appeared headed to victory in presidential elections. The falling currency sent debt-servicing costs through the roof, fanning fears that Brazil could quickly follow Argentina down the path of default.
Lula got elected, but the default talk has receded thanks to a series of aggressive policy moves from the new president, who has quickly hiked the primary budget surplus target, tightened monetary policy and floated
market-friendly plans to overhaul the tax and social security system. He's also pushing for greater central bank independence after naming Henrique Meirelles, a
former head of global operations at FleetBoston with resonance on Wall Street, to run it.
The moves were enough to turn Christopher Smart, an emerging market equity fund manager at Boston-based Pioneer Investment Management, into a buyer.
"It got to a point where we just thought the valuations were very attractive, the worst had been discounted into the prices, and if the new Lula administration did things only slightly better than people were expecting, then
the market could have a really good run," said Smart, who helps manage around $1.5 billion in investments.
Brazilian equities have jumped 11% in dollar terms in March, according to the MSCI, helped by a 5.4% recovery in the real ($1=BRL3.387). The country's debt has booked another 4.8% advance this month, increasing the year-to-date returns on the EMBI+ to 19%.
But some of Brazil's smaller neighbors are also suddenly swimming in the money. Ecuador, widely viewed as a prime default candidate a few months ago, has suddenly become a popular destination after its newly elected president, Lucio Gutierrez, departed from his socialist roots by introducing a stiff austerity plan during his first week in office. That helped secure a new standby loan from the International Monetary Fund, and Ecuadorean bonds have returned 7.6% in March and 29% so far this year - tops in the EMBI+'s 19-country universe.
Argentina's economy contracted 11% last year after the government stopped payments on some $100 billion in foreign bonds, but there are clear signs that the country is finding its footing again after four years of wrenching
recession. Earlier this week the local currency rallied to ARS2.85 against the dollar - its strongest level in 11 months. Argentine stocks have risen 5.2% in
local currency terms and 23% in dollar terms so far this year on the MSCI.
"Argentina hit rock bottom and there's really only one direction to go," said GlobalEqon's Goodman.
After contracting 0.5% last year, the region's economy is poised to register 1.5% to 2% growth in 2003 and expand 4% in 2004 if international conflicts don't
worsen, Enrique Iglesias, the president of the Inter-American Development Bank, said this week.
That doesn't mean there aren't local storm clouds. Venezuelan President Hugo Chavez, whose rule has bitterly divided his country, caused waves on Wednesday
by calling for a sovereign debt restructuring. The country is mired in a stiff recession and still has no functioning foreign exchange market after the government shut it down in January during a two-month nationwide strike.
Remarkably, though, Venezuelan bond spreads had actually narrowed to 1387 basis points over U.S. Treasurys on Friday from 1406 at the end of February.
Part of the reason is that Venezuelan output of oil, a pricey commodity because of Middle East turmoil, has returned to near its pre-strike levels of 3 million
barrels a day.
In a clear sign of how much sentiment has shifted toward the region, the two countries that investors felt most comfortable with in 2002 are having a tough time attracting buyers. Equities from Mexico and Chile, the region's only investment-grade credits, have both managed to eke out only 2.0% gains in dollar terms so far this month on the MSCI.
Their bond spreads, which were already tight entering the year, also have hit a bit of a wall, with Mexican debt returning a relatively pedestrian 3.0% so far this year. Some investors are beginning to question how much more money can be squeezed out of either credit, especially as they begin to ponder the possibility of the U.S. at some point moving back into a rate-hiking cycle after several years of monetary easing.
"A lot of people who are dedicated emerging market investors are much more afraid of the duration risk than credit risk," said Robert Kowit, who helps oversee $1.9 billion in international fixed-income funds at Federated Investors.
Chile, which imports more than 80% of its oil needs, is also susceptible to high crude prices. Mexico's fortunes, meanwhile, are closely tied to the U.S. economy, which continues to stand on shaky ground after a decade of robust growth.
But if market participants don't see a lot of upside for either country, they're also not sounding any alarm bells. Investors have been cheered by signs that domestic demand is bouncing back in Chile, which is expected to post at least 3% economic growth this year.
And Mexico's peso ($1=MXN10.73) has rallied sharply after sinking to a record low of MXN11.22 in early March, boosted by a central bank plan to sell windfall oil revenue on the open market. Mexican oil exports averaged 1.9 million b/d in February, when sky-high oil prices pushed the country's monthly trade balance into the black for the first time in nearly six years.
"It is an important strength Mexico has and it's being played out in the global environment," said Roger Scher, head of the Latin American sovereign credit group at Fitch Ratings.
Oil prices could come back to bite Brazil, which imports about 20% of its oil needs. One of the factors fueling the country's rally has been oil prices, which, while still high, dropped back below $30/barrel earlier this month.
"If things really deteriorate globally, Brazil can't run away from that," said Robert Berges, chief Latin America equity strategist at Merrill Lynch, which has a marketweight recommendation on Brazilian stocks.
But others think Brazil is well positioned to weather another potential spike in oil prices and global risk aversion if the Lula government moves ahead with structural economic reforms at home.
"I think Brazil has the potential to be a story sort of like Russia or South Africa," said Federated's Kowit.
Russian bonds were far and away the best performer in the EMBI+ last year, racking up a 36% return for investors. South African bonds registered a 23% return.
But both those credits appear to be coming back down to earth as bond spreads get pricey. Russian bonds have only returned 0.4% so far this month, while South African debt has surrendered 0.6%.
-By Mike Esterl
Edited by - moderatore on 3/28/2003 21:4:29