Russia's troubles could spur dollar inflows to Latin America

lunes 31 de marzo de 2014 10:35 GYT

By Walter Brandimarte and Alonso Soto

COSTA DO SAUIPE, Brazil, March 31 (Reuters) - Leading Latin American economies such as Mexico and Brazil are poised to receive short-term capital flows from investors fleeing Russia due to fear of geopolitical instability and an economic recession there, analysts said.

Such inflows are not expected to be strong enough to have a lasting impact on the countries' exchange rates but have already caused market buzz and became a topic of discussion during this weekend's annual meeting of the Inter-American Development Bank in a resort near the Brazilian city of Salvador.

"There are indications based on what we have heard from our European analysts that some of that money that is flowing out of Russia may be coming to the region," Mauro Leos, Moody's senior analyst for Latin America, told Reuters on the sidelines of the IADB meeting.

Leos' comments echoed remarks made by local analysts in Brazil, who had attributed part of the real's recent gains to dollar inflows coming from Russia.

He noted, however, this is likely to be a "short-term and not very significant phenomenon" that is not going to make a "big difference in terms of capital inflows and appreciation of local currencies."

Many investors have been pulling out of Russia as Western powers' sanctions over Moscow's annexation of Crimea risk tipping the Russian economy into a recession. Goldman Sachs recently predicted capital outflows from the country could reach $130 billion this year, or double the level recorded in 2013.

In Latin America, Brazil and Mexico are the two main destinations for such inflows but for very distinct reasons, analysts said.

While both countries offer deep financial markets with diverse investment options, Mexico is a favorite for its economic stability and a government push for structural reforms that has led Moody's to lift its credit ratings to grade A.   Continuación...