Titans bet on Latin American energy corporate debt

Bond market titans, including T. Rowe Price Group Inc. and Invesco Ltd. confident that Latin American corporate debt from the oil, gas and financial sectors will perform well this year, despite electoral risk and fiscal challenges region of.

Samy Muaddi, Portfolio Manager, Debt Strategy emerging markets of T. Rowe, said that the best operation in Latin America is the corporate and quasi-sovereign credit of Mexico.

That is because the public perception of the Administration of President Andrés Manuel López Obrador in the face of fiscal reality “has the largest gap between the headline and reality,” Muaddi said in a telephone interview on Thursday.

The firm, which oversees $ 1.6 trillion globally, including $ 28 billion in emerging markets debt, has a modest counter overweight in Latin America that is highly concentrated in corporate and sovereign debt from Mexico Y Chile, while being underweight in the rest of the region.

The company recommends the oil and gas industry, which includes state oil company Petróleos Mexicanos, known as Pemex, and pure traditional banks in Mexico for their lack of contingent liabilities.

He also advocates a balanced allocation between investment grade and high yield, and uses Treasury futures to hedge concerns about duration.

“At this time, the portfolio balance would be rated BBB and BB. Generally, we rotate in individual B and CCC when there is a dislocation, but the extended dislocation is not really evident at this point outside of Argentina ”.

Both Mexico and Chile have greater fiscal space to absorb the impacts and, although both countries have some “political noise”, they enjoy a good fiscal anchor

Instead, “when you compare that with Brazil, there is political noise that intersects with fiscal risk, and that is, generally, a toxic combination.”

For his part, Jason Trujillo, Invesco’s senior portfolio manager and head of emerging markets credit, said in an interview Thursday that he expects a solid positive year for Latin America, given relatively attractive performance levels and an improving fundamental outlook. .

Invesco, which manages $ 1.5 trillion globally, also expects the oil, gas and banking sectors to be competitive overall this year. And while Argentina’s sovereign debt is probably “not that attractive right now,” it appears that the worst is over for the nation’s corporate debt in terms of the economic crisis.

“The companies that issue bonds in foreign currency are among the largest and strongest in that country.”

“Colombia, Peru and Panama look well prepared to reverse the weakness observed during the last 12 months. Meanwhile, El Salvador, although under a high level of stress, seems to be offering attractive scores this time. “

Primary market

Citigroup Inc. was the largest underwriter for Latin American bonds in 2021, as the value of transactions increased 0.7%. Issuers sold $ 210.5 billion in bonds compared to $ 209.1 billion in 2020, according to data compiled by Bloomberg League Tables.

Mexico returned to international debt markets after six months, to become the first developing nation to sell dollar bonds this year. The nation on Tuesday valued $ 2.2 billion in 12-year bonds at 190 basis points above the yields of US Treasuries of similar maturity, as well as $ 1.9 billion in bonds maturing in 2052 and with a spread of 235 points. basic, according to a person familiar with the subject.

Banco de Crédito e Inversiones valued a green bond of US $ 200 million to help finance or refinance new and existing green assets that are aligned with initiatives such as renewable energy and clean transportation.

Secondary market

Investors who have been bullish on Mexican bonds due to the government’s fiscal austerity just had one more reason to stick to their bets. Less than a week into the year, the Latin American nation has already covered more than half of its external financing needs by 2022, and has postponed the schedule of what it owes to bondholders in general through an agreement of liability management that, he says, is worth $ 5.8 billion.

Argentine dollar bonds fell further since September after Economy Minister Martín Guzmán criticized the spending cuts proposed by the International Monetary Fund, highlighting the difficulties that lie ahead in reaching a new agreement.

Goldman Sachs Group Inc. plans to continue expanding in Latin America after a record year in the region, hiring in areas including equity research, sales, trading and derivatives.

Economy

Mexico’s inflation provided little relief for the new central bank governor in December, remaining more than double the bank’s target, as it slowed a fraction since November.

Peru raised interest rates for the sixth month in a row as inflationary pressure mounted, amid the strong rebound in the economy since the pandemic.

Argentina raised its benchmark interest rate for the first time in more than a year as it faces calls from the International Monetary Fund to tighten its monetary policy.