Argentina, Brazil, Capital Markets, Emerging Markets, Mexico c - Mon April 13, 2015

Lost year for LatAm as fund managers warn of ‘toxic’ mix

Leading investment fund managers and economists warn Emerging Markets that Latin America faces another lost year in 2015 thanks to falling commodity prices and internal domestic problems

Latin America is being hit by a “toxic” mix of falling commodity and energy prices and the prevalence of too many countries with high current account deficits, according to leading analysts and investors.

The net result is yet another year in the economic and financial wilderness for Latin America. Its leading economies are also struggling with febrile growth, failed reforms, and in some cases, political chaos surrounding corporate scandals, leading global fund managers and analysts told Emerging Markets.

Kevin Daly, senior investment manager for emerging market debt at Aberdeen Asset Management, pointed to the deep economic duress facing the region’s largest and most critical economy. “Brazil is facing a lost year without a shadow of a doubt,” he told Emerging Markets.

Venezuela, strangled by lower energy prices and facing the need to source $5bn to repay debts owed by state-run energy giant PDVSA in October and November, is also facing an “horrendous” 12 months, Daly added.

The broad expectation being priced into the market is for Venezuela to default on its sovereign in the coming months, but for the fallout to be contained.

Neil Shearing, chief emerging markets economist at Capital Economics, warned Brazil was “at the forefront of everyone’s concerns, and rightly so. The outlook there is dire, with headwinds including potential power rationing from droughts and the ongoing Petrobras scandal.

“There is a very real risk that just a few months into her [second term in office], Dilma Rousseff has become a lame duck president, resulting in total government paralysis over the next two to three years, and that’s the last thing Brazil needs, given that its economy is stagnant at best. The economy is in dire need of reform, but it won’t get any with this government.”

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