LatinFinance - Special Edition - August 2013 - 76

2
THE
FUTURE
OF LATIN
FINANCE

Latin America will not escape the financial volatility that’s in store for global
markets in the coming years, says Pimco chief executive Mohamed El Erian.
But the region will weather it better. By Taimur Ahmad

Mohamed El Erian
A question of risk

G

lobal financial markets will be marked by one principal feature in
the years ahead: heightened volatility, as investors re-price risk in a world weighed down by
macro and policy uncertainty.
that’s the view of mohamed el erian, chief executive and co-chief investment officer at
newport Beach, california-based Pimco, the world’s biggest fixed-income fund.
fear gripped global markets in the early weeks of the summer after US federal Reserve
chairman Ben Bernanke made it clear the central bank intended to wind down its bond-buying program by year-end. What followed was a widespread re-pricing of risk – and an almost
indiscriminate sell-off across credit markets.
markets stabilized in the weeks that followed, but el erian says heightened volatility is
now an inevitable feature of a new landscape: investors will continue to realign credit risk
amid lingering uncertainty over US monetary policy and continued global economic weakness.
“i see a lot of financial volatility ahead because people like us will be re-pricing the liquidity paradigm,” he tells LatinFinance.
Emerging market turmoil
the prospect of tightening global liquidity proved especially violent for emerging markets. a
sell-off intensified to levels not seen since the collapse of lehman Brothers in 2008, leading
many analysts to proclaim the end of the road for the asset class. Returns for the year as a
whole are likely to be negative for the first time in five years. and the asset class has abruptly
fallen out of favor with investors.
But el erian – who returned in 2007 to run the $2 trillion asset manager after two years
overseeing the Harvard management company, where he managed its $30 billion endowment – says the turmoil represented a “severe technical adjustment” that is likely to have run
its course.
He puts much of the adjustment across global emerging markets down to a retreat by
crossover investors. “What happens still in latin america is the minute you have a technical
dislocation in the global markets crossover investors look to get out. at that point liquidity
evaporates and you get a massive technical sell-off.”
that has led to investment opportunities, especially in local currency and interest rate
markets. “that sell-off makes the less informed people think these are the bad old days. But
the more informed people see this is a great thing, a time for differentiation, and they see
this as opportunity.”
While he “wouldn’t go out and buy the [em] index,” emerging markets have become “a
very differentiated story,” he says.
“History tells you that unless bad technicals lead to bad fundamentals this technical phase

76 l atinfina nce.com - 25 Years - August 2013

is often temporary and reversible,” he says,
citing mexican local-currency interest rates
as being of particular appeal.
Still bumpy
asset markets will nevertheless remain
“much bumpier than the real economy
because you’re going to shake out crossover
investors,” el erian says.
much of this follows an artificial rise in
global asset markets in recent years following what he describes as “aggressive,
experimental and unconventional policies”
by developed nation central banks.
“everything has been overvalued. We’ve
had artificial pricing everywhere, starting
from the US treasury market all the way
out: whatever risk factor you want to look
at, be it credit, liquidity, equity, everything
was overvalued. and what you’ve had is an
adjustment.”
emerging market debt was hit especially
hard by this year’s market turmoil, says el
erian, because of the pullout of crossover
investors.
“emerging debt suffered more than it
should have because of the phenomenon
of the ‘tourist’ dollars and the lack of a big
enough dedicated investor base,” he says.
“People exited simply because they didn’t
want to be caught with off-benchmark
exposures and there was very little appetite
among the broker-dealer community to
take down inventory.”
Policy fallout
emerging markets continue to suffer the
fallout out of unorthodox monetary policies by developed world central banks – a
fact that has complicated policymaking
across the emerging world.
the effects of Western central bank
policy “have put many of these emerging
economies in a lose-lose situation,” he says.
“You lose by trying to resist the negative ex-


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LatinFinance - Special Edition - August 2013

Table of Contents for the Digital Edition of LatinFinance - Special Edition - August 2013

Latin Finance - Special Edition - August 2013
The Evolution of the Markets 1988-2013
The Future of Latin Finance
"Twenty-five Years Ago, LatinFinance Was Launched With One simple, if Well-worn, Belief: That Crisis Inevitably Gives Way to Opportunity"
Evolution of the Markets & Deals of the Quarter Century
Turnaround Time, for Some
Rising Champions
Locals Wanted
Gaining Pace
A Question of Depth
The Public-Private Balance
Cheaper Borrowing
Keeping It Simple
Local Banks Are Increasingly Stepping Up the Latin League Tables
LatinFinance Charts a Quarter Century of Change for the Biggest Banks in Latin America
LatinFinance Picks Out the Major Turning Points in the Region’s Political, Economic and Financial History Over the Past 25 Years
Governance & Reform
President, Mexico
Former President, Brazil
“the Government Has Not Given Up on What Is Fundamental. but When It Comes to Improving The Lives of Brazilians, There Are Signs It Has Started To Weaken"
Former President, Colombia
Opposition Leader, Venezuela
Former Us Treasury Secretary
Stability & Regulation
Governor, Bank of Mexico
“Latin America Did Very Well During the 2008 Crisis. but It’s Also True That a Lot of Ammunition Was Used”
Chairman, Grupo Financiero Banorte
Former Vice-Chairman, Citigroup
Partner, Cleary Gottlieb Steen & Hamilton
Former Governor, Central Bank of Brazil
Former Governor, Central Bank of Venezuela
Former Governor, Central Bank of Argentina
Professor of Economics, Columbia University
Corporates & Capital
CEO and co-CIO, Pimco
CEO, Gávea Investimentos
Founder, Celfin Capital
With Joyce Chang, Richard Frank, Hari Hariharan, Hans Humes, Will Landers, Mark Mobius and Martin Schubert
CEO, Itaú-Unibanco
CEO, Grupo Sura
Chairman, Santander
CFO, América MóVil
Former CEO, Vale
Chairman, Roubini Global Economics
Growth & Development
Former President, Chile
President, CAF
President, IDB
Former President, IDB
Former President, Caribbean Development Bank
President, Centennial Group Latin America
A Look Into the Future With Alternate Visions of Latin America a Quarter Century From Now
LatinFinance - Special Edition - August 2013 - Latin Finance - Special Edition - August 2013
LatinFinance - Special Edition - August 2013 - Cover2
LatinFinance - Special Edition - August 2013 - The Evolution of the Markets 1988-2013
LatinFinance - Special Edition - August 2013 - The Future of Latin Finance
LatinFinance - Special Edition - August 2013 - 3
LatinFinance - Special Edition - August 2013 - "Twenty-five Years Ago, LatinFinance Was Launched With One simple, if Well-worn, Belief: That Crisis Inevitably Gives Way to Opportunity"
LatinFinance - Special Edition - August 2013 - 5
LatinFinance - Special Edition - August 2013 - Evolution of the Markets & Deals of the Quarter Century
LatinFinance - Special Edition - August 2013 - 7
LatinFinance - Special Edition - August 2013 - Turnaround Time, for Some
LatinFinance - Special Edition - August 2013 - 9
LatinFinance - Special Edition - August 2013 - 10
LatinFinance - Special Edition - August 2013 - 11
LatinFinance - Special Edition - August 2013 - Rising Champions
LatinFinance - Special Edition - August 2013 - 13
LatinFinance - Special Edition - August 2013 - 14
LatinFinance - Special Edition - August 2013 - 15
LatinFinance - Special Edition - August 2013 - Locals Wanted
LatinFinance - Special Edition - August 2013 - 17
LatinFinance - Special Edition - August 2013 - Gaining Pace
LatinFinance - Special Edition - August 2013 - 19
LatinFinance - Special Edition - August 2013 - 20
LatinFinance - Special Edition - August 2013 - 21
LatinFinance - Special Edition - August 2013 - A Question of Depth
LatinFinance - Special Edition - August 2013 - 23
LatinFinance - Special Edition - August 2013 - 24
LatinFinance - Special Edition - August 2013 - 25
LatinFinance - Special Edition - August 2013 - The Public-Private Balance
LatinFinance - Special Edition - August 2013 - 27
LatinFinance - Special Edition - August 2013 - Cheaper Borrowing
LatinFinance - Special Edition - August 2013 - 29
LatinFinance - Special Edition - August 2013 - Keeping It Simple
LatinFinance - Special Edition - August 2013 - 31
LatinFinance - Special Edition - August 2013 - LatinFinance Charts a Quarter Century of Change for the Biggest Banks in Latin America
LatinFinance - Special Edition - August 2013 - G2
LatinFinance - Special Edition - August 2013 - G4
LatinFinance - Special Edition - August 2013 - G5
LatinFinance - Special Edition - August 2013 - 34
LatinFinance - Special Edition - August 2013 - 35
LatinFinance - Special Edition - August 2013 - 36
LatinFinance - Special Edition - August 2013 - 37
LatinFinance - Special Edition - August 2013 - 38
LatinFinance - Special Edition - August 2013 - 39
LatinFinance - Special Edition - August 2013 - 40
LatinFinance - Special Edition - August 2013 - 41
LatinFinance - Special Edition - August 2013 - 42
LatinFinance - Special Edition - August 2013 - 43
LatinFinance - Special Edition - August 2013 - 44
LatinFinance - Special Edition - August 2013 - 45
LatinFinance - Special Edition - August 2013 - 46
LatinFinance - Special Edition - August 2013 - 47
LatinFinance - Special Edition - August 2013 - Governance & Reform
LatinFinance - Special Edition - August 2013 - 49
LatinFinance - Special Edition - August 2013 - President, Mexico
LatinFinance - Special Edition - August 2013 - 51
LatinFinance - Special Edition - August 2013 - “the Government Has Not Given Up on What Is Fundamental. but When It Comes to Improving The Lives of Brazilians, There Are Signs It Has Started To Weaken"
LatinFinance - Special Edition - August 2013 - 53
LatinFinance - Special Edition - August 2013 - 54
LatinFinance - Special Edition - August 2013 - 55
LatinFinance - Special Edition - August 2013 - Former President, Colombia
LatinFinance - Special Edition - August 2013 - 57
LatinFinance - Special Edition - August 2013 - Opposition Leader, Venezuela
LatinFinance - Special Edition - August 2013 - 59
LatinFinance - Special Edition - August 2013 - Former Us Treasury Secretary
LatinFinance - Special Edition - August 2013 - 61
LatinFinance - Special Edition - August 2013 - Stability & Regulation
LatinFinance - Special Edition - August 2013 - Governor, Bank of Mexico
LatinFinance - Special Edition - August 2013 - 64
LatinFinance - Special Edition - August 2013 - B1
LatinFinance - Special Edition - August 2013 - B2
LatinFinance - Special Edition - August 2013 - 65
LatinFinance - Special Edition - August 2013 - Chairman, Grupo Financiero Banorte
LatinFinance - Special Edition - August 2013 - 67
LatinFinance - Special Edition - August 2013 - Former Vice-Chairman, Citigroup
LatinFinance - Special Edition - August 2013 - Partner, Cleary Gottlieb Steen & Hamilton
LatinFinance - Special Edition - August 2013 - Former Governor, Central Bank of Brazil
LatinFinance - Special Edition - August 2013 - Former Governor, Central Bank of Venezuela
LatinFinance - Special Edition - August 2013 - Former Governor, Central Bank of Argentina
LatinFinance - Special Edition - August 2013 - 73
LatinFinance - Special Edition - August 2013 - Professor of Economics, Columbia University
LatinFinance - Special Edition - August 2013 - Corporates & Capital
LatinFinance - Special Edition - August 2013 - CEO and co-CIO, Pimco
LatinFinance - Special Edition - August 2013 - 77
LatinFinance - Special Edition - August 2013 - 78
LatinFinance - Special Edition - August 2013 - 79
LatinFinance - Special Edition - August 2013 - CEO, Gávea Investimentos
LatinFinance - Special Edition - August 2013 - Founder, Celfin Capital
LatinFinance - Special Edition - August 2013 - With Joyce Chang, Richard Frank, Hari Hariharan, Hans Humes, Will Landers, Mark Mobius and Martin Schubert
LatinFinance - Special Edition - August 2013 - 83
LatinFinance - Special Edition - August 2013 - 84
LatinFinance - Special Edition - August 2013 - 85
LatinFinance - Special Edition - August 2013 - CEO, Itaú-Unibanco
LatinFinance - Special Edition - August 2013 - 87
LatinFinance - Special Edition - August 2013 - CEO, Grupo Sura
LatinFinance - Special Edition - August 2013 - Chairman, Santander
LatinFinance - Special Edition - August 2013 - CFO, América MóVil
LatinFinance - Special Edition - August 2013 - Former CEO, Vale
LatinFinance - Special Edition - August 2013 - Chairman, Roubini Global Economics
LatinFinance - Special Edition - August 2013 - Growth & Development
LatinFinance - Special Edition - August 2013 - Former President, Chile
LatinFinance - Special Edition - August 2013 - 95
LatinFinance - Special Edition - August 2013 - President, CAF
LatinFinance - Special Edition - August 2013 - 97
LatinFinance - Special Edition - August 2013 - President, IDB
LatinFinance - Special Edition - August 2013 - Former President, IDB
LatinFinance - Special Edition - August 2013 - Former President, Caribbean Development Bank
LatinFinance - Special Edition - August 2013 - 101
LatinFinance - Special Edition - August 2013 - President, Centennial Group Latin America
LatinFinance - Special Edition - August 2013 - 103
LatinFinance - Special Edition - August 2013 - A Look Into the Future With Alternate Visions of Latin America a Quarter Century From Now
LatinFinance - Special Edition - August 2013 - Cover3
LatinFinance - Special Edition - August 2013 - Cover4
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