Prepare for “years” of volatility ahead – Ortiz
Latin financial markets must get ready for a prolonged period of turbulence that could last “several years”, Banorte chairman Guillermo Ortiz warns in an interview with LatinFinance
Latin financial markets must dig in for "several years" of
volatility as an inevitable adjustment towards higher developed
world interest rates is certain to prove disruptive for
emerging markets, Guillermo Ortiz, chairman of
Mexico’s Grupo Financiero Banorte, has warned in
an interview with LatinFinance.
Although emerging regions including Latin America are "very
well prepared" to face tighter liquidity conditions as the
global monetary policy cycle normalizes, economies and
companies that require external financing are now "more
vulnerable" to a reversal in capital flows, Ortiz said.
Markets in recent weeks have stabilized following a sharp
sell-off in emerging market assets in May and June on fears of
an earlier-than-expected end to the US Federal
Reserve’s bond buying program.
But Ortiz, who as finance minister in 1995 helped coordinate
the response to Mexico’s peso crisis, warned that
the recent market respite could prove short-lived.
"The markets are calmer today but the trigger can come at
any point," he said. "Emerging markets and Latin American
countries will be well advised to prepare themselves for a
difficult period in the next years."
He added: "What we face now is an episode of a normalization
of interest rates that will last for sure for several years.
The process of adjustment is never smooth, it’s
always disruptive. One has to be prepared for that."
His comments came in the wake of
Banorte’s MXP31.98bn ($2.55bn) follow-on equity
sale on July 16. The deal was Mexico’s largest
equity sale since Santander Mexico’s $4.1bn
IPO last September and the largest all-primary follow-on in the
Ortiz said that while market conditions for the sale "were
not ideal" he was "pleased" with the outcome of the deal, which
was 3.5 times oversubscribed.
"We had headwinds of course: we have problems with
homebuilders and the Mexican economy has also slowed down
considerably in the first part of this year. But yet I think
Banorte’s story is pretty compelling," he
Mexico’s homebuilders are facing a liquidity
crunch following a shift in government policy and are seeking
to restructure their debts. Mexico’s stock
exchange on Friday suspended trading in Urbi, a troubled
homebuilder that had postponed its quarterly trading report a
Ortiz said that Mexico’s economic prospects
were nevertheless "quite good" relative to other emerging
markets. "Mexico’s economy is in a very strong
competitive position and that is being reflected in large flows
of both domestic and foreign investment" – a fact he
said was helped by the government’s ambitious
economic reform agenda. LF
The full interview with Banorte chairman Guillermo Ortiz
will be published next month in LatinFinance’s
landmark 25 Year edition.