Brazil's Finance Minister was the first to mention the term "currency wars," reflecting the impact of currency appreciation on the region. Direct and indirect foreign exchange intervention is likely to continue as growth, commodity prices and interest rate differentials all support Latin currencies and put pressure on policymakers to contain their advance. The risk that policymakers may attempt to contain foreign exchange appreciation through aggressive intervention measures is highest in Brazil, Colombia and Peru and low in Chile and Mexico.
Sovereign and Corporate Credit
In terms of credit in the region, sovereign debt has seen much reduced risk/reward dynamics in terms of total return potential. Sovereign debt received a lot of attention from investors for their more favourable long-term growth trend and low debt burdens relative to some developed countries. Additionally, the markets have experienced much-improved liquidity over the past few years. On the other hand, there is still a large preference for corporate credit. With limited room for further spread tightening, investors have been finding yield in the high-yield segment. Analysts favour the energy, metals and mining sectors of Argentina, Mexico, Chile, Colombia and Venezuela.
Conclusion
Credit markets in emerging and developing nations continue to attract flocks of international investors. With the world poised for a recovery, the commodity-driven LatAm nations are likely to benefit significantly. A point of interest is investors' shift in focus from only the larger BRIC nations to the new emerging nations such as Chile and Peru. In our ensuing series on this developing story, we take a look at theses new emerging markets in the LatAm region.