MercoPress. South Atlantic News Agency

Leading banker warns of “market adjustments” in Latam

A senior international banker predicted a further shake-out in emerging markets, particularly Latinamerica, arguing that asset prices in the region, (the best performing market last year) “have run ahead of economic fundamentals in many cases” and the market needs some sort of adjustment.

Quoted by the Financial Times, Bill Rhodes, vice-chairman of the Institute of International Finance, which represents international banks, said "the market needs some sort of adjustment to take some of the fluff out. The question is how big the adjustment will be". Speaking in Guatemala at the annual conference of the Inter-American Development Bank, the region's leading development institution, Mr Rhodes said that in both Latin American sovereign and corporate markets "prices did not accurately reflect risks. Some international investors and lenders have failed to exercise sound risk management. We think this is the moment to push our membership and others to exercise prudence". Rhodes, a senior Citigroup banker who was involved closely with Latin America's external debt restructurings of the 1980s and 1990s, made a similar forecast ahead of the market correction of May last year but said that the sell off had been "too short and too shallow. It would have been better if we hadn't had it". The sell-off in global markets last February, which saw equities tumble across the region, was possibly only "the first leg of a correction that could continue for some time, especially given concerns about US economic developments." With Latin America growing by an average of nearly 5% in 2006 â€" its fourth successive year of advance - inflation subdued, and the region recording strong current account surpluses, a growing number of investors have been pumping money into its stock and bond markets. Last year, regional equities outperformed their emerging market peers. Bonds are trading at record lows compared to US Treasuries. Along with IIF colleagues Rhodes also urged regional governments to continue to introduce "key structural reforms" that can increase economic productivity and allow Latin America to compete more effectively with faster-growing rivals in Eastern Europe and Asia. Rhodes praised the governments of Brazil, Mexico, Chile and Peru but said several other governments had "pressed ahead with policies that are not supportive of sustained long-term growth â€Ã‚¦ (and that) these policies increased the vulnerability of their economies to shocks".