Politics Sours $1.8 Trillion Asset Manager on Latin America Debt

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(Bloomberg) -- Politics, politics and still more politics. That’s what will dominate Latin America’s biggest economies this year, and provides good reason to be wary of the region’s financial markets, says Europe’s largest asset manager.

"Latin America is difficult to play," Vincent Mortier, deputy chief investment officer at Amundi Asset Management, said in an interview in Hong Kong last week. "Elections are coming in Mexico -- probably a very left-wing party will be elected. Brazil is also in the election process.”

Amundi, which oversaw 1.45 trillion euros ($1.8 trillion) as of March, has cut its fixed-income positions in Brazil and Mexico to underweight from neutral. “We prefer Asia for sure overall -- credit and equities,” Mortier says.

Mexico’s populist presidential candidate, Andres Manuel Lopez Obrador, has surged in polls ahead of the July election, with Barclays Plc warning this month his victory would have the “most negative implications” for Mexican markets. In Brazil, investors are also bracing for political upheaval, with the right making a comeback in the run-up to the October ballot.

Meanwhile, a slump in Asia’s bond market may offer a better entry point for investors. The region’s emerging-market dollar debt had its worst returns in two decades in the first quarter, thanks to a jump in short-term interest rates that spurred investors to unwind bets.

“The fundamentals of these economies are better than what they used to be, and internal demand has also developed" in emerging Asian nations, Mortier said. "These countries are less dependent on external factors, and we believe they will be more resilient.”

©2018 Bloomberg L.P.

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