Latin America is the only “investible” bloc among developing countries, he said, as central and eastern European nations struggle with the economic fallout from Russia’s invasion of Ukraine and the unattractive risk premium in China and other Asian markets. .
“It’s a region where the rates are generally high, so the premium is higher compared to anywhere else,” he said. “There is optimism for Latin America in the medium and long term in terms of investment flows.”
Mexico is a “very good case” also because of the so-called nearshoring process, Masagão said. “It means GDP potential, investment and a stronger exchange rate,” he added. Gains, however, are limited after the currency hit an eight-year high and the local yield curve priced in “too many” rate cuts.
It is the same for Brazil, where local funds turned bullish without much conviction and with already “not so good” prices, creating the risk that they will unwind bets too quickly in the event of a negative event.
The fund industry “got on the bull boat because it was forced by a market that was going in the opposite direction, and because it is performing well this year,” he said.
A Brazilian hedge fund index has risen 3.2% so far this year, versus a 6% gain for the local benchmark CDI rate.
Masagão was also bullish on the Chilean currency amid interventions by the country’s central bank, saying Colombian markets have the highest risk premiums in the region amid risks such as double-digit inflation and a rising cycle. of rates still in progress.
“Colombian rates can potentially go even higher, and the drag due to high rates has been important to support the currency,” Masagão said.