COVER STORY: Finding fortune

Mar 1, 2014

Latin America’s capital markets are facing a sell-off in emerging markets as indiscriminate as the bull phase it succeeded. But as returns dwindle, asset buyers will have to become more discerning. By Dominic O’Neill

To many, a brutal new year’s sell-off in emerging market assets seemed to entrench a view that the biggest risk to financial stability now sits in the emerging world — including Latin America.

Average yields in JPMorgan’s benchmark index of emerging market local currency government bonds reached 7.2% at the end of January, up from 5.2% in April last year, and compared to yields on 10-year US Treasuries still less than 3%. Within the region, Argentina was forced to a 23% devaluation of the peso in January, its biggest since 2002.

By the end of February, average yields in the emerging markets bond index had returned to below 7%. Currencies rallied: the South African rand and the Turkish lira, as well as the Brazilian real, one of the currencies that has been most vulnerable. But to some, the rebound remained a dubious one.

The recovery is unlikely...

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