Latin American bonds and currencies attract yield-hungry investors

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Big asset managers are flocking to Latin American bonds and currencies, attracted by the region's high interest rates, low inflation and more resilient economies than many expected. Latin America is home to five of the world's eight best-performing currencies this year, which have benefited from early and decisive action by the region's central banks in raising rates and keeping them high even as inflation recedes. Local bond total returns have also soared ahead of developed market peers, as lofty inflation-adjusted yields catch investors' attention. “With each passing month, the real yield is getting higher,” said Paul Greer, emerging markets debt and currency portfolio manager at Fidelity. “So, more and more investors want to put their money in Latin American currencies for that reason.” Greer, whose portfolio is overweight local currency bonds from Brazil, Mexico, Colombia, Peru and Uruguay, said that for both government debt and pure currency exposure, Latin America is "the place to be.

One exception, she said, is Argentina, which has been cut off from access to international markets after a debt default and where inflation exceeds 100 percent. Latin America's central banks took the fastest and most decisive Job Function Email Database action globally as inflation pressures rose in the wake of the coronavirus pandemic, helping to contain price growth much faster than in other regions. But high rates have not stifled economic growth. Brazil and Mexico, the region's two largest economies by GDP and the most popular among international investors, beat growth forecasts in the first quarter of this year, prompting economists to raise their year-end projections. . In Brazil, the poster child for early and aggressive increases, annual inflation is now below 4%, down from more than 13% at this time last year, while interest rates have remained high at 13.75 % since August 2022. In Mexico, rates have remained at 11.25 percent since March and headline inflation fell to 6 percent in May. “In places like Brazil or Mexico, we are now talking about real returns.



Global fixed income officer at JPMorgan Asset Management. “Is it a crowded business? Has everyone gotten into it? I don't think that's the case yet," Stealey said, adding that foreign ownership of local emerging market bonds remains low post-pandemic and that multi-asset investors "haven't yet moved into emerging market debt." emerging”. Part of the reason investors are returning to Latin America is that market jitters about leftist governments in Brazil, Chile, Colombia and Peru have been calmed by a lack of majorities in Congress that has left them unable to implement many of its policies. And central banks have maintained their independence, ignoring calls from President Luiz Inácio Lula da Silva in Brazil and President Andrés Manuel López Obrador in Mexico to reduce interest rates, arguing it stifles economic growth.