Capital Flows to Latin America: Recent Developments

ECLAC Washington Office's latest report Capital Flows to Latin America: Recent Developments highlights that with rising capital inflows likely to continue in the near term, overheating has become one of the main challenges for Latin America and the Caribbean financial assets.

Stock prices have increased sharply since May. Since reaching a low for the year on fears of European debt contagion on May 20, equity indices in Latin America have gained more than 30%. Bond markets in the region have also benefited from big inflows into the sector, with improved broader risk sentiment contributing to lower credit risk premium both in the sovereign and corporate sectors. The pace of new bond issuance has picked up since May and, in September, it reached its highest monthly level so far this year. The corporate sector accounted for 84% of the total amount issued from January to September 2010.

As debt levels and financing needs of Latin American countries continue to fall, credit quality continues to improve. The improved debt levels, together with strong economic growth, have led to a continued trend of credit upgrades in the region. Year-to date there has been 26 positive sovereign credit rating actions and only two negative actions in the region.

The Washington Office's report on Capital Flows to Latin America, released twice a year, offers an assessment of the region's access to external financing. It follows developments in bond markets, including the evolution of bond spreads and debt issuance, in equity markets and commercial bank lending to the region. The region's creditworthiness, new debt issuance, liability management and terms of borrowing are monitored in the report, as well as movements in Latin American stock markets and in syndicated loan markets. Special emphasis is placed on investor perspectives on Latin American assets, as well as markets' views and expectations.