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In early January 2016 the Institute of International Finance released data that showed unprecedented capital outflows from emerging markets. The headline figure – a dizzying $735 billion in 2015, following $111 billion in 2014 – flashed across the world and made the leap from financial media to mainstream news.
Underneath the headline statistic it quickly became clear how much China was dominating these outflows. The IIF calculated $676 billion of the $735 billion was directly related to China. In Latin America, that part of the outflow story was not a comfort. The region, strong on commodity-exporting companies, has long been seen by investors as a derivative of Chinese demand.
Latin America’s fixed income market has seen a collapse in primary issuance. According to Dealogic data, it fell from $133.2 billion in 2014 to $70.6 billion in 2015 and yields have increased markedly. But despite the bad news something interesting is happening.
Geoff Dennis, head of global EM strategy for UBS, questions why Latin America’s fixed income markets have seemingly dislocated from equity markets. Unlike equity markets, which have seen record outflows in 2014 (EPFR reports $11.9
