LATAM WRAP-LatAm credit under pressure from risk aversion
By Paul Kilby
NEW YORK, Aug 5 (IFR) - Latin American credit markets suffered from broader selling pressures on Wednesday as investors cut risk in emerging markets during the summer months.
"It is not just Brazil anymore," Klaus Spielkamp, head of fixed-income sales at Bulltick, told IFR. "We have seen sellers in Colombia, Costa Rica (and other countries)."
Investors are rebalancing portfolios away from emerging market assets in anticipation of a Fed rate hike this year, the Institute of International Finance (IIF) said this week.
The trade group said heightened refinancing risks as EM currencies sink against a rising dollar, a commodities price slump and a worsening outlook for EM exports as Chinese growth slows are among the challenges facing the asset class.
"Together with expectations of rising US rates, these developments have helped trigger a sustained rebalancing of international investors' portfolios away from EM assets, particularly equities and to a lesser extent bonds," it said.
This comes as traders expect a rebound in EM CDS trading as credit risks rise, despite a recent drop in turnover.
EM CDS trading volumes hit US$275bn in the second quarter, a 29% decline from the same period last year and a 28% fall versus Q1, according to trade organization EMTA.
"I expect volumes to rebound, as deteriorating credit fundamentals in EM are generating renewed interest to hedge exposure," Simon Sassenberg, a CDS trader at Bank of America Merrill Lynch, said in a statement. Continuación...