Latam debt bet
Andre Algranti and Alberto Bernal, XP Securities
Next, I made my way to Brickell Avenue to meet with XP Securities’ chief executive Andre Algranti and chief emerging market and global strategist Alberto Bernal. They explained why they remain bullish on Latin American high yield, and also why they anticipate emerging markets will continue to outperform US equities.
‘2017 was a banner year for traditional assets,’ Bernal said. ‘Just to present two examples, the MSCI EM Index delivered investors a USD return of 34.3% year-on-year, and the S&P 500 paid investors 19.4% year-on-year, ex ante dividends.’
Bernal called the performance nothing short of outstanding, particularly given that the world’s risk-free rate remained close to 2% nominal. He noted that it will prove very hard to replicate these levels of returns in 2018, at least in traditional assets. XP Securities believes that holding on to assets that have an inverse relationship to the value of the US dollar should pay off if the dollar stays weak this year.
‘We expect emerging markets to deliver around a 15% return this year. We remain bullish on high yield Latin America USD-denominated bonds, for example, as we believe that US inflation fundamentals will continue to underwhelm the consensus.’
For those willing to accept more risk, Bernal believes local debt in Mexico and Argentina continues to look quite attractive.
‘We expect to see Mexican and Argentinian local debt paying investors close to 20% in USD terms next year, thanks to material disinflation. Lingering good growth impulses around the world will also help to keep commodity prices supported – a development that will also help emerging market assets.’
XP also expects more attractive relative valuations to allow Europe and Japan to outperform US equity markets this year.