(Reuters) – Economic cycles and a wave of political changes have made Latin American corporate bonds and Argentinian government bonds denominated in dollars stand out as important “areas of interest,” according to UBS Global Wealth Management’s head investment officer for emerging markets Americas.
“It is an error to ignore LatAm,” Alejo Czerwonko said at Monday’s Reuters Global Markets Forum.
“Strategically, an allocation to LatAm assets in portfolios is a must, not least as valuation across equities, some fixed-income segments, and a number of currencies, are quite depressed at the moment,” Czerwonko said.
Significant policy changes have shaken Latin American emerging markets this year, causing volatility to soar and sell-offs across a range of asset classes that have opened up appealing entry possibilities.
As the Senate of Argentina approved a law essential to President Javier Milei’s goals, including extending a currency swap loan arrangement with China, Argentine sovereign bonds have gained value this year on expectations of changes by the libertarian leader and budgetary restraint.
According to Czerwonko, there is still “opportunity” in Argentinian sovereign bonds denominated in dollars because he thinks that progress in fiscal consolidation and reforms, as well as the government of Milei’s rebuilding of foreign currency reserves, would prevent Argentina from going through with a debt restructuring.
“There is widespread recognition that addressing Argentina’s structural economic imbalances necessitates short-term pain for long-term gain,” he said.
Furthermore, Czerwonko sees a variety of possibilities in the Latin American corporate bond market as big businesses use their liquid balance sheets, comfortable debt maturity profiles, low leverage, and minimal financing risks to traverse various economic cycle stages.
Particularly, Mexico “enjoys a number of secular tailwinds, so we are tracking (the) peso and Mexico rates very closely,” Czerwonko said, pointing to the country’s near proximity to the United States, its large number of free trade agreements, and its youthful labor market.
“U.S. remittances are flowing into Mexico at a record $60 billion annually, and this process of economic integration has more room to run, in my view,” he said.
