2017 September 11 by admin
Argentine stocks, after sloughing off disappointment at MSCI’s unmentioned first-tier return with the frontier index up 35% through July, was again on edge into mid-August primary elections, with former President Christina Fernandez charting a Senate comeback to rally the opposition Peronist party. She retains popularity especially among working class pockets in the capital as the current political base, given the large social spending during her tenure subsequently slowed under the Macri government’s austerity policies. However corruption and money laundering investigations have put her on the defensive, and she roughly tied with the ruling Change coalition candidate in the preliminary race ahead of the October mid-term polls. Foreign investors took her revived visibility in stride as the central bank intervened to support the peso after relative stability following its free float. Recent inflation figures still at 1.5 percent monthly and delays in agricultural export proceeds have pressured the currency, but the monetary authority has tried to maintain high real interest rates through a 25 percent benchmark and Lebac secondary market transactions. The exchange rate has slipped over 10 percent in nominal terms the past few months to 17/dollar with the current account deficit wider at 3 percent of GDP on goods and services imbalances, the latter from increased tourism abroad. Fiscal policy is mostly on target with the primary gap around 4.5 percent of GDP despite election-related outlays and consolidation backlash as unions organize against consumer subsidy and provincial transfer cuts. Should President Macri’s grouping hold its own in the October contest the process will accelerate as sovereign bond holders have begun to insist on further discipline with growth pickup to sustain high-yield participation.
Brazil is also grappling with overdue reforms as President Temer survived an initial impeachment attempt and his cabinet vowed to press on with labor and social security changes. The employment code overhaul will update World War II era practices and ease administrative burdens for small business in particular, while pension adjustment remains uncertain with plans to extend retirement age and conceivably shift to private fund reliance as the current generous scheme is an outsize budget drag. The pro-business PSDB, which backed Temer’s ouster, is a proponent while his PMDB, the largest party in Congress is divided a year from the next scheduled national elections. The government must tread carefully after bad publicity over price and service switches at passport offices and other essential arms to save money. The overall deficit is stuck at 10 percent of GDP and the once sacrosanct primary surplus will not reappear over the near-term. Loosening has moved to the monetary side as the central bank continues to reduce the benchmark Selic, with inflation at a 20-year low of 3 percent on incipient economic recovery. However recession is still deep in Rio de Janeiro state a year after the Summer Olympics there prompting a media blitz of critical retrospectives. A former governor is in jail and major politicians in charge of the event contacts face criminal prosecution, as law and order has worsened since the closing ceremonies. Federal authorities have dispatched 10000 troops to patrol the streets and beaches as the sporting facilities originally designed for productive municipal use lay idle in another form of retirement abuse.
2017 June 18 by admin
Venezuelan bonds as top EMBI performers came under pressure for boycott or index removal, after leading houses were reported to have scooped up issues held by the central bank and other captive buyers at a steep discount through small specialist brokers. Goldman Sachs bought a $3 billion chunk at one-third the price through a London intermediary, and Nomura and Morgan Stanley were also involved in deals. Opposition parties in Caracas condemned the move and expatriate demonstrations were organized in Miami and Washington as a former Planning Minister, head of Harvard’s International Development Institute, referring to widespread staple food shortages, dubbed the instruments “hunger bonds.” He called for benchmark index removal as MSCI applied long ago for equities given pervasive exchange controls. Although international reserves are not formally divulged they are estimated in gross terms at $10 billion, roughly equivalent to import needs with scant cushion for debt-servicing. PDVSA has already executed a maturity swap which won bare acceptance with local investor control, and its future was further thrown into question with its chief executive due to depart. A President Maduro loyalist is set to fill the slot, who was previously in charge at US unit Citgo, which has pledged collateral both to bondholders and Russian partner Rosneft in case of default. The Treasury Department increased scrutiny of the relationship as the Trump administration debates sanctions against the regime after the President tweeted about a meeting with the spouse of jailed opposition head Lopez. Military support at home may be wavering as security forces demur at cracking down on street protesters, as Maduro’s bid for a hand-picked national assembly to rewrite the constitution and mollify popular outcry has met with sweeping criticism following the Organization for American States’ anti-democracy condemnation. The Chinese meanwhile are bracing for further losses on their $50 billion bilateral loans with unknown asset claims that could place them in direct conflict with other creditors.
Previous high-flyer Brazil has also lost favor, as MSCI equity gains fell to 3 percent through May, with the Electoral Court to determine whether President Temer received illegal campaign contributions after release of a payoff tape he claimed was “doctored.” Core PMDB party backing may no longer be assured as the stage is set for another potential impeachment. He promises to continue pressing labor and fiscal reform agendas, but major public pension overhaul in particular could be in danger with the budget deficit heading toward 10 percent of GDP despite renewed growth. The Temer recording allegedly came from one of the founding brothers of global meat supplier JBS, which faces bond and stock holder lawsuits after admitting to bribery and accepting a $3 billion penalty. Prosecutors got wind of wider misconduct after investigating inspector kickbacks for tainted products. Beef rival Argentina in contrast paced frontier markets with a 45 percent jump on possible track toward an MSCI upgrade in advance of primary elections before the October parliamentary poll. President Macri and his party intend to underscore economic success with the recession over and fiscal targets mostly honored with a one-time amnesty as $30 billion in capital has poured into one-month central bank bonds with yields over 20 percent. A new internationally-compliant consumer inflation gauge will be operational in July with likely IMF endorsement as the current administration craves its approval after a decade of resistance.
2017 April 15 by admin
Ahead of a $2 billion state oil company amortization in April, Venezuelan bond prices fell to the 40s as the Supreme Court moved to disband the opposition party-led National Assembly in another violation of the Organization for American States (OAS) charter drawing member condemnation. Fifteen countries headed by Mexico had called for political prisoner release and elections before the judicial “coup,” which was reversed when the Attorney General broke ranks with Chavista allies to outlaw the maneuver as unconstitutional. The challenge was the latest senior official blow after February’s US arrest of Vice President El Aissami on drug trafficking charges, and prompted another round of violent street protests against security forces amid worsening food and medicine shortages. Import needs are estimated at $20 billion, twice reported reserves, but oil earnings should rise to $30 billion with higher prices and Chinese loan repayment relief could also provide breathing space. The government is trying to sell PDVSA joint venture stakes to raise revenue but has been blocked in parliament, and the impasse may have animated the mooted closure effort. A miner got a Washington court order to attach oil monopoly assets, as Conoco awaits another likely big arbitration award from nationalization.
Ecuador bonds sagged likewise as President Correa’s chosen successor Moreno defied projections with a 2 percent win over rival former investment banker Lasso, who demanded a recount. The victor, confined to a wheelchair, gained support with his personal courage and common touch, in contrast to the opposition candidate considered aloof and closely tied to the business elite. The legislative majority for Moreno’s party shrank 20 percent to 55 percent, and he inherits a recession and 5 percent of GDP budget deficit after last year’s earthquake which may force resort to the IMF, which offered natural disaster aid.
Elsewhere in the Andeans Colombia’s sovereign ratings outlook was upgraded to stable by two agencies as the current account gap tightened to 4.5 percent of GDP and fiscal reform was passed in 2016, although peace plan spending may erase immediate tax gains. Economic growth has languished at 2 percent, but inflation has halved to 5 percent on food cost reduction allowing the central bank to cut benchmark rates. In the wake of the guerilla accord and mushrooming Odebrecht scandal, jockeying has begun for 2018 elections, with one of President Santos’ ex Vice presidents set to run, although an anti-establishment outsider could enter in the current charged climate, experts believe. Peru stocks increased the same 5 percent on the MSCI index in the first quarter as the government lowered its growth forecast 1 percent to 4 percent, which would still top the South American charts. Inflation is put in the 2 percent target range this year after consecutive misses, and recent flooding could again damage crops. The budget deficit will remain steady at almost 3 percent of GDP despite President PPK’s consolidation pledge as he ramps up early reconstruction and infrastructure spending. The terms of trade switched with commodity recovery to enable surplus return, but copper value remains heavily dependent on Chinese appetite and despite a flurry of commercial overtures to Beijing another bottoming is factored into metals scenarios.
2017 March 25 by admin
Brazilian stocks continued at the front of the core universe and a $1 billon sovereign bond return was acclaimed at a lower than expected 5 percent yield, despite a poor last 2016 quarter bringing GDP contraction to almost 4 percent, and interim President Temer’s popular disapproval rating rivaling his ousted predecessor. Headline scandals also proliferated, with construction giant Odebecht now facing bribery charges and penalties across Latin America, with Peru seeking extradition of former President Toledo for questionable transactions in office. Local prosecutors are investigating hundreds of mayors suspected of corruption, including for deals around the Rio Olympics as the original Car Wash campaign probe drags on, with courts to determine whether the Rousseff-Temer election ticket should be retrospectively invalidated. The current government head waved off this risk and his unpopularity and went on a media blitz to affirm commitment to structural spending reforms, as reflected in legislation to tie discretionary appropriations to inflation increases over the next decade, and limit state pension and social security outlays out of kilter with global norms. The primary fiscal deficit was a record 2.5 percent last year and public debt could soar to 90 percent of GDP by end-decade without program rollback. The currency has rebounded along with currencies from the previous trough and facilitated inflation reduction to 5 percent, and the central bank cut the benchmark 75 basis points at its latest meeting and is on track to slash it to single-digits over the coming months. The easing is share-positive and could spur flat corporate and consumer lending on both demand and supply constraints. The new director of development bank BNDES has concentrated on portfolio restructuring and clarified future direction as providing targeted support to justify its subsidy instead of an all-purpose backstop as in the past. FDI assistance is a priority as $80 billion continues to pour in annually to offset capital outflows and cap the current account gap at 1.5 percent of GDP.
Argentina has been on its own 20 percent roll on the MSCI frontier index and President Macri and his Brazilian counterpart have met and set up commercial and diplomatic teams to revive the moribund trade pact Mercosur, after ejecting Venezuela from the group. The two countries have clashed on auto sector tariffs and the bloc maintains steep barriers against outside goods. The overall trade balance was in surplus in 2016 after a 2015 deficit, with agricultural harvests ample on commodity price recovery and peso collapse subduing imports. Growth has turned positive after last year’s recession and the new Finance Minister, after an early 2017 external bond encore, promises to redress the 4 percent of GDP fiscal gap with measure still protecting the poor. The central bank has kept interest rates around 25 percent with stubborn inflation in the aftermath of floating the peso. The President’s minority party hold in parliament could worsen in upcoming elections, but the opposition Peronists remain too divided for a blowout. One wild card is the possible candidacy of his predecessor Christina Fernandez, now under both criminal and civil proceedings for suspect currency and Iran dealings. The latter claimed the life of the former lead investigator in a shooting incident looking like suicide, amid scrutiny of the government’s self-inflicted policy wounds.
2017 January 16 by admin
After solid EMBI and MSCI frontier index gains in 2016, Argentina securities paused on President Macri’s one-year anniversary, with a cabinet reshuffle sidelining Finance minister Prat-Gay and preparation for another heavy external bond issuance round estimated at an initial $10 billion. The fired minister’s portfolio was split in two with his deputy assuming fundraising responsibility and another appointment macroeconomic policy. He oversaw a successful tax amnesty which brought in $100 billion and $7 billion in penalty payments, but was unable to otherwise constrain the 6 percent of GDP fiscal deficit or restore GDP growth, as continuing recession dents the President’s popularity rating heading into local elections. Almost all the inflows, 85 percent from offshore, went to cover public pension increases, as the separate nominal revenue rise lagged 20 percent inflation keeping the budget hole. To trim it subsidy rollbacks were announced upon taking office but further pain has been spared by court decisions and political opposition. With the relatively loose fiscal stance monetary policy has remained tight with the central bank benchmark at 25 percent for 5 percent real rates. With these juicy yields foreign money has poured into local currency bonds and the country will soon be added to the GBI-EM gauge with a small weighting. According to new Finance Minister Caputo 2017 total official and private financing needs are in the $30-$40 billion range, and after over $20 billion in sovereign debt return last year, another big wave may not be as enthusiastically received despite the manageable 35 percent of GDP burden. In Q2 alone $10 billion must be repaid in dollar instrument amortization and to the Paris Club, and global interest rates are expected to rise with the new US administration’s spending plans, with a best case scenario for meager economic recovery at home. Minister Prat-Gay with his Wall Street background was said to lack the common touch and the elite perception played into the hands of the Peronists who still control Congress, as they also fight corruption charges against their former leader and President Christina Fernandez. She has been accused of money laundering through deals with a hotel magnate and of profiting from central bank speculation during her era of foreign exchange controls, and investigations into the regime’s role in the Iranian bombing of a Jewish center are ongoing which suggest a back channel payoff from Tehran.
Brazil after a banner 2016 remains stuck in its own scandal proliferation, as construction giant Odebrecht agreed to billions of dollars in criminal restitution to prosecutors and shareholders. Industrial output continued to drop at a double-digit monthly clip, as state debt problems lingered with a court ruling against federal help. Congress post-recess is to debate the proposed long-term discretionary spending cap tied to inflation and pension reform, as the central bank may relieve fiscal pressure with larger 50 basis point rate cuts. Infrastructure is in the spotlight as interim President Temer vows to introduce a new transport concession program after the bungled attempts surrounding the Rio Olympics. China may put $20 billion into a joint fund as the rules are rolled out, but previous road and railway schemes threw potholes into such ambitions and state development bank BNDES is no longer in financial position for repairs.
2016 December 14 by admin
Brazilian shares held on to MSCI-beating 70 percent and EMBI-leading 20 percent gains through November, as the arrested former chief executive of construction giant Odebrecht admitted to kickbacks in a plea deal set to implicate dozens of other members of the business and political elite. The bombshell verdict came as preparations mount for former President Lula’s corruption trial, and the interim Temer government handles new cabinet minister accusations of misconduct in a property transaction. The ceaseless scandal barrage has diverted attention from fiscal reform proposals on state finances, pensions, and long-term spending, as lawmakers in their shadow introduce legislation to place the judiciary on investigative notice and strip its immunity. GDP contracted 3.5 percent in Q3 and next year minimal growth forecasts have been further pared to the 1 percent and under range with industrial output down double-digits. Inflation with the output slack and stronger real toward 3.3/dollar has retreated to a likely 5 percent next year, which will enable several hundred basis points of central bank easing in principle. The primary fiscal deficit will remain constant around 2.5 percent of GDP as public debt creeps up toward 80 percent with residual commitments for provincial rescues. In the balance of payments, the current account hole should stay 1 percent of GDP on good commodity export and foreign direct and portfolio investment numbers, with the latter aided by reconsideration of Mexico’s prospects with President Trump in office. State banks are rationalizing operations and credit books with the headline NPL ratio at 4 percent, but the sector is grappling with a wave of major corporate bankruptcies including the Oi $20 billion telecoms default. Local and foreign creditors have appointed different advisers, and talks have been acrimonious with reference to a possible two-thirds haircut. According to S&P Ratings almost 30 borrowers have been unable to pay in 2016, and restructurings are lengthy and complicated despite recent liquidation procedure overhaul. The biggest debtor Petrobras has been promised domestic and international funds for working capital as it tries to sell assets, including select field rights. On the sovereign front the country as a net creditor became the first developing economy to join the Paris Club, as it may face Portuguese-speaking African exposure in Angola and Mozambique.
Argentina share and bond index advances are in high single-digits a year after President Macri’s election win, and ahead of mid-term legislative polls in 2017, which should keep the House and Senate party configurations intact, but act as a government early economic policy referendum. Growth should be 3 percent next year after 2016’s equal shrinkage on solid agricultural exports and consumption revival, with lower inflation estimated at 15 percent. Real interest rates remain at 5 percent, and bank stocks could take off with personal lending after a long absence during the Kirchner administrations. Social and infrastructure spending will sustain a 5 percent of GDP fiscal gap despite a tax amnesty that may collect $10 billion and staple subsidy rollbacks that dented the President’s popular approval. External debt appetite has surpassed original expectations with $40 billion raised this year in dollar issuance at home and abroad, with a heavy amortization and servicing schedule in the coming months. FDI in contrast has been paltry at $2 billion despite high energy sector interest with tariff adjustments, and critics note that reputation reconstruction still awaits long-term allocation.
2016 August 18 by admin
Argentine stocks were up 15 percent on the MSCI frontier index through July, but lagged the core roster on continued recession and 30 percent inflation, as the government looked to an undeclared asset tax amnesty to raise confidence and revenue. The fiscal deficit is almost 5 percent of GDP, but the action is expected to bring in over $50 billion out of a total $200 billion hidden fund estimate. Higher energy prices to close the gap were struck down in a court ruling, and official rhetoric dismissing protests as quibbling over the equivalent of “extra pizza costs” dented the Macri team’s popularity, at below 50 percent in opinion surveys ahead of mid-term elections next year. The central bank has lowered the benchmark rate to 30 percent, and the first half trade balance was positive despite lower Brazilian demand, but employment, manufacturing and investment continue to drop and less than 40 percent of the population predicts near-term economic recovery. The administration has blamed its predecessor for these predicaments and backlash against former President Fernandez and her cabinet ministers has been fueled by criminal investigations into alleged embezzlement and money laundering. Judicial prosecutors have blocked her bank accounts and credit cards, and previous public works head is in jail after being caught with almost $10 million in bills stored in trash bins. The President’s family and real estate business partner are also under suspicion while she describes the charges as political and argues that her tenure “deserved the Nobel Economics Prize” for crisis stabilization and creditor challenge. Distressed funds have chalked up stellar gains since the current government’s decision to settle outstanding claims, with Gramercy returning 20 percent in its $750 million dedicated vehicle, as it prepares to raise another $500 million, according to reports.
Brazil and Peru have been the runaway Latin America leaders with almost 60 percent increases, as Gramercy goes after the new PPK presidency in Lima to redeem decades old agrarian bonds under a different formula than in 2013 following a court ruling. It calculates the total owed at $1.5 billion after servicing stopped during farm nationalization in the 1980s, and that the investment-grade sovereign credit rating should be marred by a selective default. In another strategy an arbitration request has been filed under the US-Peru free trade agreement seeking compensation, even though only direct inflow disputes were originally covered. Brazil’s rally extended during the Olympics, as Dilma Rousseff’s impeachment trial went ahead and former President Lula was also implicated in bribery allegations, mainly through the defunct Oderbrecht construction firm which was contracted for Games venues. A $1.5 billion sovereign bond opening was well-received, with the EMBI index likewise up over 20 percent, as stagflation and bad bank loans seemed to bottom in the latest figures. The current account deficit is unchanged at 4 percent of GDP but offsetting FDI is firm and the event tourism windfall will offer additional support. Interim President Temer was defeated in his initial bid for a constitutional ceiling on discretionary spending growth, which is just a sliver of the budget, as he also tries to revisit public pension and state commercial and development bank reforms barely heard among the crowd din for high-level official pursuit.
2016 July 28 by admin
Brazilian stocks were up 30 percent and the currency 20 percent, retracing 2015 losses, on the eve of the Rio Summer Olympics with reported 50 percent budget overrun to $4.5 billion. The federal government plugged the hole despite public debt lurching to 75 percent of GDP, as recent consumer and commodity sales data showed the recession may have bottomed. The primary budget deficit remains 2 percent of GDP, but the interim Temer administration has proposed a constitutional spending cap envisioning a maximum 2 percent increase in coming decades for discretionary accounts, which currently represent just one-tenth the total. On monetary policy the central bank intends to revive the 5 percent target and may soon lower the benchmark rate, as another charter amendment considers legal autonomy. Structural reforms including greater foreign ownership of farmland and real estate are also moving through parliament and could be passed more smoothly with the resignation of Speaker Cunha implicated in the Car Wash scandal. Both the sovereign and Petrobras returned to external bond markets, but the state oil company is far from this year’s $15 billion asset divestiture goal and faces shareholder lawsuits both at home and in New York. Default worried intensified with the $20 billion bankruptcy of airline Oi, as foreign and local bondholders organized separate groups to press their claims. It owes state banks over half that sum as credit firm Experian tracked over 400 insolvency requests in the first quarter. The new chief economic policymaker Mereilles was on a global investor relations blitz before the Rio opening ceremonies, but deposed President Rousseff will soon mount her impeachment defense, and authorities broke up an Islamic terror plot and tried to reassure about mosquito control before the Games amid security and Zika virus fears. Central bank chief Goldfajn has so far resisted exporter intervention pleas as the real strengthens, as the $350 billion reserve pile may be dented after previous swap positions are calculated and it is tapped to repay state enterprise contingent liabilities.
Argentina has lost favor as an alternative as MSCI’s latest review offered no consideration of core index return, and the economy there is likewise mired in recession on 3 percent monthly inflation under revised statistics. The central bank continues to cut interest rates toward 30 percent as the peso is firm around 16/dollar, but the fiscal deficit is frozen with lower tax collection and may worsen with a court ruling on back pension obligations. President Macri’s popularity rating has suffered as adjustments bite and the opposition rallies to workers’ and his predecessor’s sides with proposed civil service retrenchment and investigations into currency and property dealings during Fernandez’s terms. In foreign policy the President has diluted previous harsh criticism of Venezuela’s government for basic goods shortages and denying a leadership recall petition. The sovereign and state oil monopoly must repay $6 billion in external bonds the second half with reported reserves, largely illiquid, just twice that figure. Output could shrink double digits this year on hyperinflation, and thousands have poured across the border into Colombia to find food and other staples, with security threats already prominent under a demobilization deal with the rebel FARC ending decades-long civil war. President Santos believes an upcoming referendum will clearly endorse end but another predecessor feud has helped to solidify reservations about the marathon peace track tabled.
2016 June 19 by admin
Peruvian shares rocketed 35 percent as the top MSCI performer despite signaled downgrade to the frontier roster with only three listings traded, as Pedro Pablo Kucyzynski, a former Finance Minister and private equity executive, won the presidency by a hair over longtime opinion favorite Fujimori. The contest was not focused on economic policy as both candidates promoted continued discipline and free-market approaches, although PPK’s business elite credentials were attacked and he countered with a detailed anti-poverty platform. The decisive factor raised in the campaign’s final days seemed to be the strongman legacy of Fujimori’s father and his supporters, as corruption and money laundering allegations were directed at leaders of the Popular Force party, which secured parliamentary control and can foil the President’s plans. Fujimori was also neck and neck with past competitors who were disqualified by the election commission, setting off protests. PPK has indicated he may release former President Fujimori, serving a 25-year jail sentence for ordering assassinations, on age and health grounds provided the pardon applied to a broad prisoner category. Q1 growth was 4.5 percent with construction and manufacturing down, but mining, telecoms and financial services powering ahead to buttress domestic consumption and investment. Copper output jumped 50 percent, with a half dozen project expansions and launches sustaining FDI despite lower global prices. Inflation at 3.5 percent is above the central bank range, partially due to currency depreciation at 15 percent against the dollar last year, with further monetary tightening on course. Non-commodity exports have responded to cut the projected current account deficit below 4 percent of GDP this year, and the budget gap is also manageable at just 1 percent. Government debt is less than 25 percent of national income and international reserves at $60 billion cover almost two years imports. More than 20 percent of the population remains poor according to the UN, and the incoming administration’s mantra will be “inclusive growth” in a concerted effort to defuse income inequality and rural community tensions, advisers emphasize including likely Finance Minister Thorne, a former Wall Street economist.
Colombia racked up a 15 percent gain despite weak 2.5 percent Q1 growth due to oil and mining drags and El Nino-induced drought. Food price spikes and peso depreciation caused 8 percent inflation in May, with the central bank hiking the benchmark rate to 7.25 percent. The current account deficit is stuck around 6 percent of GDP with FDI off one-quarter on the commodity slump. The fiscal gap is nearing the 3.5 percent of GDP statutory ceiling as a tax reform bill awaits congressional action. Ratings agencies have warned that the outlook may go negative without debt stabilization within their investment-grade assignment. Another risk damaging business and consumer confidence is the proposed peace settlement with guerilla rebels after an initial March deadline passed. It will be put to a referendum, and demobilization spending may be financed by a special wealth levy, just as the military ramp-up to defeat the FARC and ELN was in the early 2000s. Officials also rely on another phase of the US Plan Colombia aid program to restore rural public services, but the free trade agreement has provoked clashes that may deal expansion a knockout blow, according to donor agencies involved in the conflict.