Latin American markets: Too hot to handle?

The IMF is worried about overheating in some Latin American economies, thanks to an “excessively stimulative environment”.

Although the institution is reluctant to label current conditions in the region’s largest markets bubbly, when it comes to credit growth the IMF acknowledges that concerns are rising about whether loan growth is becoming “excessive and eventually unsustainable.” Equity prices are also showing signs of “stretched valuations” in places like Chile, Colombia and Peru.

Despite being one of the region’s most active users of “macroprudential” measures to cool its economy, Peru stands out from the pack due to its rapid recent credit growth and, especially, sky-high equity valuations.

Article of the week: Andean exchange alliance

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

After more than a year and a half of talks, the major securities exchanges in Chile, Colombia and Peru are ready to form themselves into a single, unified market. The new market will be the second largest equity platform in Latin America, ahead of Mexico’s Bolsa Mexicana de Valores and behind Brazil’s Bovespa.

The timing is right. As rich-country markets falter on a slower-than-expected rebound from the economic crisis, investors are looking to fast-growing emerging markets for better returns. Although this new crossborder Andean equity market still does not hold a candle to Brazil, it does give investors a larger target in the region, as well as the simultaneous opportunity to get exposure to three Latin American economies that look very strong coming out of the 2009 recession.

Read more at Financial Services Briefing: “Andean tie-up” (October 5th)

Article of the week: Banking in Peru

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

In Peru, unlike in most other parts of the world, gripes among borrowers about miserly lenders are as thin as the Andean air. Local-currency loans to the private sector reached an all-time high recently. The share of non-performing loans is manageable. Deposits are growing strongly.

But for all the progress the country’s banks have made in recent years, few Peruvians use basic financial services. A new bill that requires government bodies and state-owned firms to pay wages via bank accounts, instead of cash handouts, should give the financial sector a further boost. But Peru’s 15 commercial banks may not reap all of the benefits, as they face still competition from a vibrant microfinance industry.

Read more at Financial Services Briefing: “A mountain to climb” (January 5th)