The application of tariffs between the United States, Canada and Mexico are postponed 30 days after a preliminary triumph of negotiations. However, the market does not rule out the commercial war on a global scale. In this context, the Head of Investment Strategy in Latin America of Citi Global Wealth, Jorge Amatoaddresses the implications of these tariffs in the main Latin American currencies that could weaken the Mexican weight and affect international investors in a more volatile 2025 but with opportunities and attractiveness.
Question How is the Latin American market with the tariff war in progress?
Answer. We are at a relatively good starting point. Now, what is the problem? We are facing a new US administration that will generate shocks. And this will test that starting point. It is very difficult to analyze the impact of these shocks because Trump’s government is unorthodox. We have a component of uncertainty about inflation and that will also affect the levels of interest rates and expected economic growth.
What effect will this environment have in the dollar against the main currencies of Latin America?
The Mexican peso will be more affected, by the country’s commercial exhibition to the US. In commercial terms we talk about 25% of rates that would not make sense that they were permanent. We shuffle a range of 20.1-20.8 pesos per dollar that has been handled with all this noise. In a scenario in which the US Trade Agreement, Canada and Mexico, we maintain that it is a reasonable range in terms of real exchange rate. Now, if the treaty disappears or modifies and ends up being more onerous in terms of tariffs for Mexico, this rate of exchange will have to be reviewed.
In the worst scenario, how much could the weight fall?
We can expect the Mexican weight to depreciate a little more. Technically, the weight could fall 25% to compensate for these tariffs if they were applied permanently and the commercial treaty disappeared. This would lead to weight to levels close to pandemic minimums. We believe that it is not logical to think that the treaty disappears because there are too many interests in Mexico. Many companies. But sometimes political decisions do not take into account logic.
Can we extrapolate this situation to the rest of the Latin American emerging market?
We cannot, because each country has a different story. Mexico has had another dynamic for thirty years. Argentina lives a change of structural policies every few years. Brazil also has its own aspects.
What is the panorama for Brazil in 2025?
Brazil comes from a very complicated 2024. But I think it goes through a crisis of trust than for an economic crisis. The Brazilian real, the stock market … The market reacted as if Brazil were to have a payment balance crisis. Our reading is not that. Obviously, the country had to expand its fiscal policy to cushion the effects of pandemia, but as other countries did. Now is time to consolidate that deficit. On the other hand, Brazil’s debt is in real and not in dollars. And has reservations to pay the current account deficit. The dollar is not a problem on that side. It would be a problem if the depreciation of the real generates an inflationary effect and presses national monetary policy. That’s where a vicious circle is generated where a real perception due to lack of trust can generate a greater economic problem.
Is the Brazilian market an opportunity?
The country continues to grow, even if it is not to the rhythm of previous years. And unemployment is also in low rates. The thing is not bad in Brazil. We have seen the market overreaction to the situation in Brazil as an opportunity because the debt is going to stabilize and the market will correct. We have already seen it a bit in January. The Brazilian bag in dollars is one of the best of the year, partly because it bounces after the disastrous 2024.
Is it time to think about Argentina from the point of view of investment?
Argentina is not a country that is fixed in a year, nor will it be fixed in two. But macros numbers I think they will continue to improve. The address is correct. I believe that all emerging markets are markets trading Within a diversified porpholio. The levels of Spred and of Argentine shares price stopped having that asymmetric risk-return in favor. It will need more than expectations. You will need the confirmation that the change will be permanent. And Argentina is still in a relatively fragile situation. It does not have many reservations and they are in dollars, which can take its toll. That said, Argentina presents the best opportunity since the early 90s.
Should we be selective in the Latin American stock market?
In general terms, the actions are traditionally quoting with discount for their main multiples. Are cheap in quotes. But a low multiple does not necessarily say that we have to buy them. There are attractive sectors, but I think Mexico will be difficult. Mexico’s bag is attractive, but in the short term the dynamic is complicated for an international investor who is investing in dollars. If these tariffs are maintained over time it will be negative for the Mexican economy, for weight and for the stock market. So in Mexico I think you have to wait a little.
And outside of Mexico?
The dispersion is too great and the feeling is too negative. And that makes it more interesting. Brazil has great players and not so much for sectors … That is why when we think of Brazilian Variable Income we seek to have a bit of everything and not just think of a sector. While in Mexico we prefer to wait, in Brazil it has been liking us for two months.
What do you think of the Latin American debt market?
We do not believe that there are structural problems to stop thinking about the debt market. The exceptions are Venezuela and to a lesser extent Argentina. I think the debt has attractiveness again in terms of nominal returns. There is a volatility component, yes. But in the end it is a fixed income instrument where you have a price, you receive a coupon and you have to be how with that coupon. Risk premiums are relatively tight, but remain interesting.
Is it worth the raw material market?
I believe that there are opportunities in raw materials, although the average investors prefer other assets or concentrate the risk on other assets. They do not know that market so much and I think that in the end in recent years the US stock market has won everything. That narrative really likes investors who extrapolate that the past in recent years is what can happen now. And that is not the case either. But I think we must remember that diversification is vital thinking about long -term investment.
Is China’s recovery still essential to revitalize Latin America?
The United States left a vacuum that Chinese filled in recent years. At this point it is difficult to disconnect from China. Today China controls ports, natural resources and has an industry in the region. Chinese financing is important in the automotive market and the streets are full of Chinese vehicles. On the other hand, the Chinese real estate crisis is not a cyclical recession. It is a recession where there is value destruction and that requires more time to recompose. China has to restructure the way it grows.
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