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Latin American debt continues to offer investment opportunity, says Market Vectors


Opportunities continue to exist in Latin American debt despite negative news coming from the region, according to Market Vectors’ fixed income portfolio manager Fran Rodilosso.

“If you just read the headlines, you might surmise that Latin American countries are presenting the debt markets with multiple reasons to be concerned,” says Rodilosso. “But, bad news can also bring opportunity.” 

Rodilosso points to a handful of what he termed “discouraging recent developments” that seem to be clouding market sentiment, including Venezuela’s re-election of Hugo Chavez and the Vitro bankruptcy proceedings that took place in Mexico earlier this year.

“Each of these events has received a great deal of negative attention,” he says. “But you can see silver linings. One includes the fact that Venezuela has continued to exhibit a willingness to pay the high rates demanded by the market during the nearly 14 years of the Chavez regime. 

“Also, Mexico has made significant economic gains in recent years, making it far more competitive with China as a global manufacturing hub.  There are a large number of Mexican corporate bond issuers that are benefiting.”

Rodilosso notes a recent uptick in volatility in several Latin American public and private debt markets driven by specific events, but he also sees factors that moderate his concerns.

“While volatility has certainly made its presence felt in recent months in many countries, there are many of what I would call ‘un-emerging market’ forces at work at the same time.   Low debt-to-GDP ratios, high FX reserves and a long list of private sector borrowers have shown the ability and willingness to continue servicing their debt throughout the economic and credit cycle,” he says.

Rodilosso his colleagues see a number of opportunities in local currency debt in countries, such as Mexico and Uruguay, and in some of the corporate debt available in Mexico and Brazil. Brazil has seen its own negative headlines around tepid growth figures and the liquidation of a second-tier bank with a significant amount of bonds outstanding.

“Brazil is certainly one of those markets where we think bad news may allow investors to find credit opportunities,” says Rodilosso.

 Rodilosso has more than 20 years of senior level experience in emerging markets, high-yield debt research and portfolio management.

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