After Donald Trump became the 45th president of the U.S., the Dow® hit the 20,000 mark for the first time in history, there was a total solar eclipse, along with massive hurricanes, floods in Colombia, earthquakes in Mexico, a referendum in Catalonia, and the New England Patriots made an historic comeback in Super Bowl LI, the Houston Astros won their first World Series, and Star Wars Episode VIII opened in movie theaters. Meanwhile, we can take a look how inflation, the reference rate, and currencies from Brazil, Chile, Colombia, Mexico, and Peru moved over the past year and how the sovereign indices of these countries performed.
First, we will take a look at the reference rate from the countries’ respective central banks. The big winners from 2017, in terms of number of movements over the past year, were Brazil and Colombia, which changed their reference rate eight times. Brazil moved it down 600 bps, from 13.75% to 7%, and Colombia moved it in the same direction, from 7.5% to 4.75%. Mexico was the only country (from the observed) that moved the overnight rate on the upside year-over-year, with five changes amounting to an increase of 150 bps, as it closed at 7.25%. Chile and Peru moved theirs -75 bps and -100 bps, respectively. Exhibit 1 shows the reference rates over the year.
In terms of currencies, Chile had the greatest appreciation of the year with 8.16%, followed by Mexico with 5.15%, and Peru with 3.52%. Colombia stayed almost the same, with an appreciation only of 0.65%, and the only currency that depreciated was the Brazilian real, down 1.81%.
As for inflation, Peru hit its lowest inflation level in 10 years when the year-over-year CPI for November came at 1.54%. Inflation in Brazil and Chile was on target (as set by their central banks), with 2.77% and 1.91%, respectively through November. Colombia closed November with 4.12%, while Mexico ended with 6.63%, beyond the ~2% target inflation set by Banxico. Exhibit 2 shows how inflation moved in 2017.
Taking a look at the sovereign indices of the nominal and real rate bonds, the big winner in terms of index performance was Peru. The S&P Peru Sovereign Bond Index closed the year with a gain of 16.98% and the S&P Peru Sovereign Inflation-Linked Bond Index increased 13.02%. On the nominal side, Peru was followed by Colombia and Mexico with gains of 9.02% and 6.59%, respectively. As for the inflation indices, Brazil was second with 12.23%, while Chile was the only country with negative returns for 2017, with -1.47%. Exhibit 3 shows the YTD and quarterly performance of the indices.
I can assure one thing that all Latin America will be expecting this year… and that’s the World Cup!