Latam debt and equities, which have outperformed their peers in both developed and emerging markets, are becoming opportunities in a region where several countries are isolated from the energy crisis hitting other continents due to their energy dependence on conditions tied to the ongoing geopolitical conflicts.
Key Takeaways:
- With the Middle East war raging, fiat currencies in Brazil and Argentina rose, drawing future inflows next.
- Following a January Trump Administration intervention, Venezuela can offer a new future market opportunity.
- Brandywine’s Jack McIntyre, managing $44B, predicts Asian markets will shift funds to Latam oil next.
Latam, Isolated From Energy Issues, Becomes An Investment Opportunity During War Time
In wartime, investors adjust their portfolios to navigate the intricacies of war and maintain their performance accordingly.
In this situation, Latam markets, which have become a sort of safe haven for investors, are rising as alternatives that, in some ways, are isolated from the energy crisis caused by the ongoing conflict in the Middle East due to their endogenous oil production.
Argentina and Brazil’s fiat currencies are among the few that have appreciated against the dollar since the war started, and dollar bonds from Ecuador and Colombia, which have a significant oil output, have also performed well in their class. Analysts also signal Venezuela as a future opportunity, as the Trump Administration continues to push for changes after it intervened in the country in January.
The failure to reach an end to the U.S.-Israel-Iran conflict after a short ceasefire only makes these bets hold up, as the uncertainty that overtakes main markets is less pervasive in the region.
Anthony Kettle, a senior emerging markets portfolio manager at RBC Bluebay in London, told Bloomberg that their highest conviction picks were now centered in Latam. “Targeting sovereigns and corporates that either benefit from, or at least are more resilient to, higher energy prices remains one of our preferred themes,” he stressed.
In addition, some are betting on the rise of these markets as Asian economies and even the U.S. start to seek diversification from their usual oil sources, bringing more funds to the region’s economies. Jack McIntyre, who helps oversee $44 billion in global fixed-income assets at Brandywine Global Investment Management, shares this opinion.
In addition, the regional high interest rates continue to make it attractive to carry trade investors, who take debt in other countries to invest in Latam. Jonathan Fortun, senior economist at the Institute of International Finance, said that recent numbers suggest that “commodity support and relative carry appeal” continue to cushion the region from market losses.
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