Top Latin American Picks for 2017 Are Petrobras, Mexican Peso; Avoid CLP

  • Hasenstab sees a ‘sharp reversal’ for Mexican peso in 2017
  • JPMorgan favors Brazilian and Mexican corporate bonds

Brazilian corporate bonds will continue to reap massive returns in 2017, while the Mexican peso is likely to bounce back after the worst selloff in eight years, according to interviews with some of the top Latin American investors and strategists. The Chilean peso is seen as the currency to avoid and Venezuela remains the biggest default concern.

Currencies:

  • Franklin Templeton money manager Michael Hasenstab favors the Mexican peso as it’s set for a "sharp reversal in 2017" after "extraordinary pressure" this year
  • Mexican peso is the most attractive given cheap valuation, hawkish Banxico and a Trump cabinet that’s less protectionist than expected, while the Chilean peso looks the worst under rising U.S. rates, says Enrique Diaz-Alvarez, chief risk officer at Ebury Partners
  • Banco Bilbao Vizcaya Argentaria SA recommends the Peruvian sol and Colombian peso short-term, Brazilian real medium-term and Argentine peso long-term. Avoid the Chilean peso and Mexican peso, says Alejandro Cuadrado, head of LatAm FX strategy.

Bonds:

  • JPMorgan’s top corporate bond trades include Cemex bonds due in 2021 and 2022, Suzano notes due in 2021 and a selection of Petrobras bonds, according to Natalia Corfield, the head of Latin America corporate credit research
  • Oil drillers including Mexico’s Offshore Drilling Holding SA have the greatest upside, while Grupo Famsa should gain as the market is "priced for Armageddon," Insight Securities money manager Carlos Legaspy says
  • Petrobras bonds are "still cheap," Banco do Brasil’s Coco bonds have upside and Samarco is an aggressive bet with "great upside" as the company will likely resume operations next year and renegotiate its bonds, says Carlos Gribel, the head of fixed income at Andbanc Brokerage in Miami
  • Digicel bonds are likely to be among next year’s strongest performers as business performance improves, while Pemex trades too wide to the sovereign and will likely see spread compression as noise around Trump settles, says Jason Trujillo, an emerging-market analyst at Invesco
  • Global funds pumped $28.1b into Brazilian sovereign debt this year, while selling a net $6.3b of Mexican securities, according to data compiled by Bloomberg

Stocks:

  • Morgan Stanley, JPMorgan and BTG Pactual are bullish on Chilean equities, pointing to rising copper prices and the possibility of a business-friendly policy changes after next year’s presidential election
  • Lerosa Investimentos, the Sao Paulo-based brokerage, favors Brazilian stocks that are less exposed to domestic politics. These include Ambev, BB Seguridade, Minerva, BRF, BM&FBovespa, Embraer, Hypermarcas and Klabin.
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