LatAm hypothesis faces moment of truth
As US rate rises become a reality, Latin American markets face another home truth: have they actually become a standalone asset class, or is a sell-off inevitable?
Deal volumes from Latin American issuers in the international capital markets soared last year and the same conditions that broke records – resurgent supply and positive investor flows into the asset classes – also saw the markets sprint into the first quarter of 2018.
Last year’s $145 billion of debt issued in the international markets was a record from the region, while equity capital markets ($27.3 billion) and M&A ($176.9 billion) were the highest annual totals since 2013 and 2014 respectively, according to Dealogic.
All three asset classes began the first quarter at a similar pace of activity (the return in force of Brazilian and Argentine issuance in the last 18 months has been a strong driver of supply) until the volatility imported from the US hit markets in mid February. That volatility, inspired by expectations of stronger than anticipated inflation and the spectre of higher US interest rates, saw a sell-off that rippled through Latin America.
Markets in both Latin America and the US quickly shrugged off these falls, which are (for now) being interpreted by US analysts as a correction in the relentless bull market in equities and bonds.