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Latin America: Fair political wind could bring ‘two years in one’ for investment banks

2018 to outpace strong issuance volume seen last year; appetite for Brazilian risk is surging.

Capital markets activity should increase from last year’s high volumes, according to investment bankers – and some are excitedly talking about record volumes.

“If the [Brazilian presidential election] opinion polls are favourable to a market-orientated candidate by June, then we could have two years in one,” says one São Paulo-based debt capital markets (DCM) professional.

“The demand for all Brazilian risk continues to be very strong – it’s supply that’s the issue as companies are proving to be more cautious than investors and are waiting for clarity in the presidential election. But if that looks to be going well, they will begin to trigger 2019 investment plans and that will require debt – and equity.”

For the past 12 months, one of the main market themes in both the international and domestic markets has been pre-funding and asset-liability exchanges as international demand reduced premia and US treasuries remained low.

“[The] prefunding theme has been prevalent for the last 12 months and is likely to continue as the Fed is on the predictable tightening path, making refinancing exercises of the next two-to-three year maturities economically sensible,” says Max Volkov, head of LatAm DCM at Bank of America Merrill Lynch.

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