FiNETIK – Asia and Latin America – Market News Network

Asia and Latin America News Network focusing on Financial Markets, Energy, Environment, Commodity and Risk, Trading and Data Management

Latin America: Investor News Letter 21.September 2012

Mexico

Analysis: China worries spur Mexico stock market flows

MEXICO CITY – Mexico has been on the wrong side of China’s economic boom for the last decade, but is now seeing an upturn in its fortunes as the Asian powerhouse’s economy slows and international stock pickers look to hedge their bets.

Can Mexico live up to its investment potential?
Deutsche Bank Downbeat On Brazil In Wake of Intervention; Mexico Retail Sales Up

Mexico, the “Forgotten” Emerging Market


Brazil

Brazil mulls raising Mexico car trade quota – sources

Brazil is considering raising a three-year bilateral auto trade pact quota it agreed to with Mexico in March, potentially allowing Mexican exporters to sell around $350 million worth of additional vehicles to the Brazilian market annually.

Brazil: PE cools in Brazil, warmes in Mexico and Andes

US urges Brazil in “clear terms’ not to hike tariffs

Brazil reacts to US stimuli saying it will keep the Real ‘devalued’ and competitive

Brazil ethanol returns to US as biofuel rules pave way

Goldman Sachs Plans Private-Equity Comeback in Brazil


Latin America

Colombia rapidly becoming another “positive surprise” from Latinamerica

Uruguay’s economy suffers slight deceleration in 2Q but on track to the 4% target

IMF calls on Argentina to implement measures on the quality of official data

Moody’s changes Argentina rating outlook to negative from stable

Deal Analysis: Panama City Metro Line 1

Gazprom in talks with Argentina’s YPF on LNG supplies

Private equity in LatAm: less new money, more deals

Shadow banking to dominate in LatAm projects

Cuba struggles with foreign investment, growth

China Steps Up Push Into Latin America

Korean Art fair highlights Latin American art

Filed under: Argentina, Banking, Brazil, Central America, Chile, China, Colombia, Energy & Environment, Events, Latin America, Mexico, Peru, Risk Management, Wealth Management, , , , , , , , , , , , , , , , , , , , , , ,

Latin America: Investors Newsletter 13 April 2012- Alternative Latin Investor

Alternative bioenergy M&A picks up steam in LatAm
Ethanol deals wait for better days

Alternative bioenergy crops could drive the next big wave of M&A in Latin America, much like sugarcane drove activity during the ethanol boom in the early 2000s, according to industry sources.

European Bank Crisis
-How will it affect Latin America?

European banks provide 45% of all the external credit lines to LatAm. Could a pullback from their international lending activities affect the operations of LatAm companies?

Other News from Latin America

LatAm tops for emerging Private Equity 

UBS Promotes LatAm Dealmaker 

Latin America’s Start Ups Expand: From Silicon Valley to Tequila Valley 

GM urges Latin America to honor trade pacts 

Private Equity Poised For Gains In Brazil On Growth Ahead 

Brazil Stocks Erase Gains, Slump On Foreign Investor Exit

Mexican firm eyeing Cuba offshore oil projects

Mexico steps out of Brazil’s shadow

Chile LAN-Brazil TAM Tie-Up Co Seen Having 2014 Revenue Of $17.5 Billion

YPF Jumps on Report Argentina Seeks Control: Buenos Aires Move

Investors Should Say Goodbye Argentina

Peru Central Bank Buys $668 Million to Stem Sol Gain: Lima Mover

Uruguay’s Credit Rating Returned to Investment Grade by S&P

Fitch revises outlook on 5 Venezuelan banks to negative

Ecuador Chosen as Best Overseas Residential Investment Market

 

Source: Alternative  Latin Investor, 13.04.2012

Filed under: Argentina, Brazil, Chile, Colombia, Latin America, Mexico, Peru, Risk Management, Venezuela, , , , , , , , , , , , , , , , , , , , ,

Argentina and Uruguay to build new Derivatives Market

Mercado a Término de Buenos Aires – MATba (Buenos Aires  Futures and Options Exchange) and Bolsa de Valores de Montevideo- BVM (Uruguay’s Stock Exchange) announced that they will create a Futures and Options Exchange in Uruguay.

The new exchange will operate under the name “MATba Rio de la Plata Bolsa de Valores S. A.” and will be the first derivatives market in Uruguay. The two exchanges are waiting for Uruguay’s Central Bank approval to start working on the first contracts, which will probably be cattle and agricultural commodities, leaving currencies and other financial products for a second stage. All contracts will be cash settled and traded electronically.

The new Exchange will be located in Uruguay. MATba will manage the electronic platform and it will provide technical assistance in registration and clearing. Both Uruguayan and Argentine members of the two markets will be able to trade in MAtba Rio de la Plata Bolsa de Valores, which will open new business opportunities for traders as well as investment and arbitrage opportunities.

Source: MondoVisione, 23.03.2012

Filed under: Argentina, Exchanges, Latin America, , , , , , , , , ,

China Latin America: The decade of the Panda?

Before China can deliver on its promise of massive investments in Latin America, Chinese companies need to overcome their fear of Latin American volatility and political risk.  And Latin America needs to prepare more cross-border suitors to bridge the cultural divide.

John Price, Shanghai –  Kroll Tendencias, January 2010

When President Hu Jintao toured Latin American capitals in November 2004, he predicted that trade and investment flows between China and Latin America would both surpass $100 billion within a decade.  His forecasts turned out to be too conservative on trade but naively ambitious regarding the flow of Chinese investment to Latin America.  Two-way trade topped $140 billion in 2008 but, according to Shanghai’s SinoLatin Capital Analysis, accumulated Chinese investment in the region at the end of 2008 stood at a meager $12 billion, considerably less than the foreign direct investment into Latin America from the U.S. state of Michigan.

What the booming trade figures underscore is the growing dependency between China and resource-rich Latin America and the compelling logic of partnership.  The disappointing investment flow levels, on the other hand, reflect the many challenges in bringing together two utterly different cultural, political, business and legal systems, in spite of the economic imperative to do so.   The missing actor, whose absence has prevented the marriage of the Latin American suitor and the Chinese bride, is the proverbial marriage broker — the bi-cultural professional class of bankers, lawyers, and consultants that can construct and maintain cross-border investments.

It takes time to develop effective marriage brokers in global business, but progress is being made.  As his company’s name would suggest, Erik Bethel, principal of private equity firm Sino-Latin Capital in Shanghai, is one such cross-border broker.  Bethel recognizes the potential of Latin America to Chinese investors and is gambling his professional career on that promise.  Born in Miami to Cuban parents, educated in the Ivy League of U.S. colleges, Bethel honed his investment banking skills in Latin America, then decided to pursue the China dream and moved to Shanghai seven years ago.  At that time, Shanghai was still a would-be financial center, littered with cranes and covered in construction dust.

Since then Shanghai as boomed as a financial hub and Bethel has learned Mandarin.  More importantly, after searching high and low, Bethel has identified some of the elusive cast of dealmakers among China’s state-owned enterprises (SOEs), whom he must woo into investing in Latin America. “Unlike the traditional global financial centers of Wall Street or the City of London where big investors walk with the swagger of pseudo-celebrities,” Bethel explains, “the guy writing the check in China is likely to be a humble bureaucrat working diligently behind a non-descript desk.  He doesn’t frequent fancy clubs or high profile conferences.  Finding him is half the battle.”

Bethel and other pioneers like him may be the key to China making good on Hu Jintao’s investment forecast.  “My job,” says Bethel, “is to find that SOE investor, who by and large has a rudimentary, if not distorted, perception of Latin America, educate him on the opportunities and realities of doing business in the region, and hopefully convince him to get on a plane and go kick the tires on the great potential that exists for Chinese companies.  I realize that this is both a frightening and exciting prospect for someone, who may never have left China other than to go to Hong Kong, and who speaks only a smattering of English and no Spanish or Portuguese, but the opportunities are just too great to ignore.  Not to put too fine a point on it, but without someone like us undertaking this great effort, how on earth is Chinese money ever going to find its way to Latin America?”

Indeed, the challenge of bringing together Chinese capital and Latin American resources requires many more foot soldiers like Bethel in China.  From the Chinese investor’s perspective, Latin America still seems more distant and exotic than the many investment opportunities at home or within China’s continental sphere.  Nothing less than a full-press educational and public relations effort is needed inside China by all those with an interest in attracting Chinese capital to Latin America, be they diplomats, multi-latinas or the professional service firms bent on catching the wave of investment.

China, the new source of global investment capital

While many Chinese investors have yet to discover Latin America, no one now doubts the tectonic shift of capital flow coming out of China.  For the last 15 years, China has absorbed more direct investment than it exported as the global Fortune 1000 bet their futures on the Middle Kingdom.  When the year-end numbers are in, however, 2009 is expected to mark the first year of positive net outflow of investment capital for China, with over $100 billion in the form of direct foreign investment overseas.

China’s sudden emergence as the new FDI source on the world stage is explained in large part by its export-driven economic growth model. In order to maintain an undervalued currency and, with it, full employment — a political imperative — China must export $250 billion of capital each year to balance its excess trade and tourism surpluses.  For several years now, the easy solution was for the Central Bank of China to buy U.S. Treasury bills, thus helping to stoke the engine of U.S. consumerism (and Chinese exports) with record low U.S. interest rates.  That formula looks less attractive thanks to undisciplined U.S. monetary and fiscal management which represses U.S. interest rates and weakens the dollar, as the prospect of much higher U.S. inflation looms ahead.

The one-trick pony model of exporting to the over-indebted U.S. middle class is now passé.  China must look to other markets for its exports and simultaneously speed the rise of its internal consumer base. Middle income emerging markets like most of Latin America, South and North Africa, SouthEast Asia and Central Asia are in many ways more natural markets than the U.S. for China’s portfolio of mass-produced consumer goods.  Building bridges both politically and commercially in those markets requires outbound Chinese direct foreign investment. 

Garrigues, Spain’s largest commercial law firm, whose transactional practice follows closely the global flows of capital, set up an office in China in 2005, when Spanish firms had caught the China bug and were pouring in capital.  Francisco Soler Caballero, head of the Shanghai office, explains, however, that the firm’s business, like the international capital flows, has reversed course.  “We came to China to help Spanish companies enter the Chinese market,” says Soler. “We continue to help Spanish companies expand in China but the economic crisis in Spain has curbed the appetite of Spanish companies for costly Chinese acquisitions. Today, we find more cross-border opportunities with Chinese companies who want to expand abroad.  Having helped countless Spanish companies enter Latin America, we are now doing the same for Chinese SOEs.  It is a welcome but unpredicted turn of events for our China practice.”

Internally, China has all it needs to develop its economy save one important element, natural resources.  There is a growing sense of concern among Chinese economic planners that medium-term growth is threatened by an uncertain supply of raw materials, which presently China must import from foreign controlled firms.  When Japan and South Korea reached a similar impasse during their rise to developed-nation status, they chose to negotiate long-term supply contracts with oil, gas and mineral producers, carefully selecting downturn years to lock in attractive pricing over 10-30 years.  With their strengthening currencies and relatively low commodity prices, such a strategy made sense for Japan and Korea in the late 80s and 90s. Given China’s obsession with maintaining its cheap currency, its resulting excess liquidity and the likelihood of continued elevated pricing with commodities, it makes far more sense for China to venture out and buy operational control of its raw material supply.  

In 2008, China had 19.6 billion barrels of proven oil reserves and 2.3 trillion cubic meters of proven natural gas reserves (14th and 16th largest reserves in the world, respectively).  But given China’s vast energy demands, China still had to import 55% of its crude oil consumption in 2008, according to the China National Information Center.

By 2020, Chinese natural gas production is expected to fall short of consumption by 50-100 billion cubic meters, which explains why PetroChina went on a recent shopping trip to Australia in search of gas production assets.

Even more dramatic are China’s shortages of metals and minerals. According to the U.S. Geological Survey, Chinese reserves of copper, manganese, and nickel are 5.4%, 8%, and 2.5% of the world’s total, while China accounts for 27%, 48% and 22% of the world’s total consumption of these metals.

Even in the politically sensitive terrain of food supply where China spends billions subsidizing its agricultural base, the country cannot avoid a reliance on imports.  Soybean is a good example.  China currently imports over 60% of its annual 50 million tons of consumption.  In terms of forestry, China is one of the largest importers of wood pulp and industrial round wood (7.4 million tons and 38.6 million tons in 2007, respectively) not only to satisfy the domestic market but also the export-driven demand of its paper and furniture industries.

Chinas Risk Adversity

Latin America has the good fortune of having many of the top producers of the resources that China so badly needs.  And there is clearly no shortage of capital in China.

New suburban homes in the Pudong district of Shanghai are sold before they are built, at a cost of $3-$5 million for a 3,000 square foot, two-floor home in a gated community.  China’s own economic stimulus package includes vast, and some say, opulent infrastructure projects.  The 30 kilometers of high speed rail track from central Pudong to Shanghai’s airport carries its passengers up to 430 km/hr for a total of 8 minutes at a construction cost of almost $2 billion.  If Chinese money can find its way into such questionable investments, why can’t Latin America attract more Yuan to its compelling array of resource companies and infrastructure opportunities?

The small and nascent talent pool of service professionals that can bridge the regions may be the most important reason for the disconnect thus far, but equally important are Latin America’s lingering perception problems.

Predictability, which the Chinese value above all else, is not a traditional Latin American virtue.  Chinese investors are disheartened by Latin America’s history of volatility.  Rather than seeing currency fluctuation as an opportunity like many savvy Latin American investors do, the Chinese loath the uncertainty that it adds to their forecasts.  Many Latin American economies have made tremendous strides to curb currency volatility and build international reserves through floating currency regimes and fiscal discipline.  Chinese investors need to be enlightened about this change and to become better versed in the science of currency hedging.  They also need to learn how to navigate and mitigate the legal and political risks of doing business in Latin America.

At home, large Chinese SOEs can rely on the rule of law or their own political power to manipulate the rule of law to ensure legal and regulatory certainty.  When the same companies look abroad, they tend to prefer one of three models; a sound legal environment, like Australia, Canada, the U.S. or Europe, where their investments are defendable through the courts; or small, undemocratic economies like the Sudan and Burma, where they can exercise political influence to their liking; or satellite economies like Hong Kong, Macao, and Taiwan where they enjoy political sway and legal protections.

The perception in China of Latin America is that the region offers neither the protections of a transparent legal system nor the ability to exercise unperturbed political influence.  Some of the largest mergers and acquisitions to date in the region have been via the purchase of foreign-listed companies, such as Corriente Resources (copper mining) and EnCana (oil and gas), both Canadian companies with significant investments in Latin America.  In this respect, it is the legal community that must lead the effort to illustrate the defendable legal rights of foreign investors in Latin America’s more advanced economies and differentiate those from the list of countries in the region where legal risk remains a serious obstacle.

Related to legal risk is the acute Chinese sensibility to political risk.  Latin America’s political dynamic is frankly too fluid and complex for most Chinese investors to grasp.  The need to campaign from the left and govern from the right, which is Latin America’s political hallmark, can prove both alarming and confounding to Chinese investors.  The relatively decentralized governance of most Latin American countries adds another source of anxiety to Chinese investors, who must get used to idea that in Latin America they are as vulnerable to the vagaries of local politics and local political players like labor unions, NGOs, and indigenous advocates, as they are to the whims of the executive branches or national legislatures.  China learned this lesson when Chinese copper giant Zijin faced violent labor conflict with its Rio Blanco mine investment in Peru.

When it comes to political risk, the Chinese need to alter their thinking, not just to deal with Latin America, but with most countries in which they wish to invest.  China’s lack of understanding of political risk cost them dearly in the U.S. when in 2005 the China National Offshore Oil Company (CNOOC) was denied by the U.S. government in its bid to purchase Unocal, subsequently gobbled up by Chevron.  China miscalculated again when telecom equipment maker Huawei was turned down in its quest of 3Com.

Perhaps Latin America’s most difficult image problem is that of physical insecurity. In a country like China where physical violence toward the business class is unheard of, where guns cannot be owned by its citizens, Latin America is the wild west by comparison.

It is one thing for a company to visit Latin America to sell goods or buy raw materials.  In either case, the risk of physical violence intruding on the negotiations is minimal.  But in the case of Chinese foreign investment, which typically relies on securing Chinese managerial control through the transfer of dozens, if not hundreds of employees from China to the foreign operation, the risk is considerably greater.  The internationally readied managerial labor pool in China is very thin, such that sending people to an “unsafe” environment is not an easy internal sell for many Chinese firms.  Overcoming the security hurdle requires a dual effort.  Latin Americans need to more openly address their security shortcomings when presenting their countries, regions and companies as investment destinations.  Meanwhile, Chinese investors need to embrace security risk by better understanding it and learning how to mitigate such risks through preventive measures and insurance products.

In November 2008, the economic imperative of Chinese natural resource investment in Latin America received a boost from China’s Ministry of Foreign Affairs when it published in its Latin American regional policy paper a centerpiece mandate titled “Go Outward” (走出去).  In China, government directives still matter because it is the government controlled SOEs (typically 70% government, 30% private ownership) that naturally lead the charge of outbound foreign direct investment.  These vast oligarchy-like enterprises have the capital (or privileged access to it) and the need to invest in their supply base.

High-level policy embracement of a “Buy Latin America” strategy was slow in developing in part because China always considered it an untouchable zone of influence of the U.S.  That fear has evidently subsided or been usurped by the sheer economic imperative of securing natural resource supplies.  The recent push by the government has prompted a new sense of urgency to invest in Latin American resource companies and resource related infrastructure projects.

The onus now lies upon vested interests to build the bridges that will bind this vital, though still awkward, partnership.  Latin Americans, with the help of service professionals, especially investment bankers, private equity funds, law firms, risk consultants and insurance firms, must step up their efforts to educate their future Chinese partners on how to evaluate, navigate the opportunities and mitigate the risks of investing in  Latin America.

Source: Kroll- Tendencias January 2010

Filed under: Argentina, Brazil, Central America, Chile, China, Colombia, Energy & Environment, Latin America, Library, Mexico, News, Peru, Risk Management, Venezuela, , , , , , , , , , , , , , , ,

Investors from Brazil, Argentina, Basque province and China flock to Uruguay

Investors from Argentina, Brazil, Spain’s Basque province and China are looking for opportunities in Uruguayan assets given the excellent political stability record of the country and proven reliability of its Judicial branch.

The trend which has been steadily increasing for several years now is proving impervious to the general election at the end of the month, even when opinion polls are forecasting a very tight race.

Analysts anticipate that not much will change whoever wins, since the three main political forces of Uruguay have rotated in office, in clean elections, and all have been very careful in their support of orthodox economics and the fostering of foreign investment, a consensus that has prevailed since the country returned to democracy a quarter of a century ago.

Precisely at the end of last month Marfrig from Brazil and one of the world’s leading food processing groups, announced the acquisition of a majority stock (51%) in the Uruguayan Tannery Zenda which works mostly overseas with upholstery for some of the most prestigious German car brands.

Almost simultaneously Jose Luis Pereira spokesperson for Uruguay’s Autoparts Chamber announced that three overseas companies were interested in establishing themselves in Uruguay to supply foreign manufacturers.

Argentina has also become an endless supplier of investors for Uruguay. Disenchanted with the unorthodox policies and uncertainties of their country they have crossed to Uruguay looking for investment opportunities not only in the more traditional agriculture and real estate sectors but also in manufacturing and services.

Actually recent Argentine government decisions have virtually “expelled” some of the most advanced farmers who have settled in Uruguay helping to promote a truly technological “revolutionary” transformation of Uruguay’s agriculture, which historically has been more traditional and adverse to risk.

In Spain an official Uruguayan trade delegation, headed by Finance minister Alvaro García, met with Basque entrepreneurs who expressed a firm interest in Uruguay’s foreign investors’ legal framework and opportunities to invest in different sectors. A delegation of Basque businessmen is scheduled to visit Uruguay in the near future.

Last September a delegation of Uruguayan entrepreneurs visited the International Investment and Trade Fair in China and also returned with good news. “Chinese businessmen expressed interest in knowing more and in depth about what is considered one of the most stable economies of the region and a reliable access to the South American trade area, Mercosur (Argentina, Brazil, Paraguay, Uruguay plus associate members, Chile and Bolivia).

“Chinese investors showed a special interest in infrastructure projects, renewable energies, water treatment plants and port facilities” according to Roberto Villamil head of the Uruguayan delegation.

China is one of Uruguay’s leading trade partners and since its opening to the capitalist system almost three decades ago, has been the main purchaser of the country’s wool clip and tops.

Source: MercoSur, 08.10.2009

Filed under: Argentina, Brazil, China, Latin America, News, , , , , , ,