Capital Flows to Latin America: 2017 Year in Review

The total amount of debt issued by LAC borrowers from January to November 2017 reached US$ 138 billion, the highest annual amount ever issued in the region. Investors’ enthusiasm for LAC assets was supported by synchronized growth at the global level, still low interest rates across de globe (with only a very gradual tightening in the United States), weakness in the U.S. dollar, and an improvement in the region’s own economic conditions. On the sovereign side, seventeen countries tapped international bond markets this year, with Argentina topping the list with 28% of the total sovereign issuance from January to November. The strong cross-border market performance was supported by a tightening in bond spreads. LAC bond spreads tightened 56 basis points from January to November 2017. However, despite a tightening in spreads, the credit quality in the region continued to deteriorate: there were 24 sovereign downgrades from January to November, and 10 upgrades. Although current expectations suggest credit conditions will continue to be favorable in 2018, challenges remain. Domestically, a heavy election cycle next year may lead investors to delay plans and may bring uncertainty. Regarding the external environment, while forecasts seem optimistic, an asset price correction or a geo-political surprise could lead to capital outflows from the region.