Bloomberg — BlackRock Inc. favors local-currency bonds in Latin America over other emerging markets as central banks in the region gear up to start reversing the world’s steepest interest-rate hiking cycle.
Chile cut its key rate by 100 basis points on Friday and is likely to be followed by Brazil on Wednesday, with Peru and Mexico joining the trend later in the year. Uruguay and Costa Rica have already eased borrowing costs.
“It is a good time to enter fixed-income,” said Pablo Goldberg, a money manager and head of research for BlackRock’s emerging-markets debt team. “For us, the opportunity is much more in those places where central banks have a lot of room to cut rates.”
For one of the world’s largest money managers, the region looks more attractive than Asia, which never had the same inflationary shock as Latin America and as a result, never raised rates as much. Brazil hiked by 11.75 percentage points, Chile by 10.75 points and Mexico by 7.25 points. Now inflation is slowing and economic growth is under pressure, prompting policymakers to start to slash borrowing costs.
Colombian-peso denominated bonds have returned more than 20%, debt from Brazil has gained around 13% and notes from Mexico have also outperformed the roughly 5% returns across emerging markets, according to an index of local-currency debt.
The region’s currencies have posted world-beating rallies as investors moved into local assets, with the Colombian and Mexican pesos and Brazilian real among the best performers globally this year.
That’s left Latin America with no “cheap” currencies, Goldberg said in an interview from Bogota. But the carry offered by interest-rate spreads with developed economies will continue to make investors favor the region.
“We’ll have a weaker dollar market that will allow us to continue capturing this carry, and that continues to be extremely attractive, especially in Latin America,” Goldberg said.
--With assistance from Maria Elena Vizcaino.
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