There’s a lot of bad news to ignore. The International Monetary Fund expects Latin American and Caribbean economies to contract by more than 8% in 2020, the most of any region, with only a 3.6% improvement in 2021. And non-financial companies with foreign debt have seen revenue dented by a combined $200 billion due to the pandemic, Fitch Ratings estimates. The credit ratings company expects sales to rebound by less than half that amount in 2021.
But there are green shoots. The largest economies regained some lost ground in the third quarter. U.S. appetite for manufactured products helped Mexico report seasonally adjusted quarter-on-quarter growth of 12%, and local stimulus contributed to record-breaking expansion of almost 8% in Brazil, led by President Jair Bolsonaro.
More fiscal stimulus in developed countries, especially spending on infrastructure, could further boost commodity prices. That would be good for some of the region’s largest companies by revenue, including Petrobras, Pemex and Vale. Meanwhile, regional companies’ cash piles have grown to around 2.4 times short-term debt in 2020 from less than 2 times in 2019, Moody’s Investors Service calculates.
Country-specific risks remain. For example, Chile is getting a new constitution, and Peru saw two presidents leave office within a week in November. Also, around half of the region’s countries are on Fitch Ratings’ negative watch list for credit ratings downgrades. That will weigh on corporates with close links to states, like Colombia’s Ecopetrol. But the returns on offer in the region may be too alluring for investors to pass up given low U.S. and European yields.
There's a sweet spot for debt? How do I get that?
Oh well