Morgan Stanley is increasing its investments in Latin America as geopolitical conflicts elsewhere in the world give the region increasing prominence in the global economy.
Wars in Europe and the Middle East and rising tensions in Asia highlight the importance of Latin America “for reorganizing supply chains and accessing everything from food and industrial metals to transition fuels and pharmaceutical ingredients,” John Moore, who heads the Latin America region for Morgan Stanley, said in an interview.
Citing “deglobalization” trends around the world, Moore said the bank has “steadily increased our investment in Brazil, Mexico and other Latin America geographies, a trend we expect to see continue” with incremental increases of people and capital.
Morgan Stanley, which also has outlets in Argentina, Chile and Colombia, sees opportunities for investment-banking gains in merger-and-acquisition advice, capital-markets underwriting, sales and trading, and private credit, he said. The New York-based company has about 400 people serving Latin American clients in those business.
One of the five biggest wealth managers for rich individuals from the region, the firm expanded that business’s assets about 6% last year, to roughly $120 billion.
Still, Latin America isn’t immune to volatility. “Obviously there are macro rate headwinds and political transitions throughout the region and globally, with Mexico and Brazil underperforming US markets year-to-date,” Moore said.
Mexico Elections
Mexico’s newly elected president, Claudia Sheinbaum, brings a layer of uncertainty for investors. She was widely expected to win and bring a more market-friendly posture to Mexico. But the ruling coalition’s near supermajority in congress blindsided investors, who fear lawmakers will pass constitutional reforms that could erode checks on power and pressure the budget. The peso has lost almost 8% against the dollar so far this year.
“To me, there is an abundance and variety of opportunities in Mexico, with the increased flows of foreign direct investment and remittances supporting the peso, cross-border M&A, and hedging and derivatives associated with underwriting,” Moore said. “We recently checked with clients who had plans for Mexico, and they remain on track following the election results.”
Morgan Stanley was among underwriters of the $677.4 million initial public offering of BBB Foods Inc., the operator of a discount retailer in Mexico, which priced in February in the US. The company, a holding firm that conducts business through its main subsidiary, Tiendas 3B, raised its price range during the deal, which was more than 10 times oversubscribed.
The investment bank also participated on the transaction of Peruvian health-care company Auna SA, and is among the announced underwriters for an expected IPO of Grupo Aeromexico SAB, the Mexican carrier that emerged from bankruptcy protection more than two years ago.
Morgan Stanley Tactical Value — which makes private, long-term and likely illiquid investments — was among investors in a $100 million funding round by Mexico payments startup Clip, announced earlier this week.
The volume of equity offerings by Latin American companies is up 34% so far this year, to $3.64 billion, data compiled by Bloomberg show.
Brazil Investments
In Brazil, fiscal concerns have also been pressuring the real, which lost 10% of its value so far this year. But foreigners are still interested in investing there, given the cohort of technology-enabled fintechs and e-commerce firms as well as a “huge ESG opportunity” in renewables, Moore said. They include second-generation ethanol for aviation from sugar cane biomass, as well as local infrastructure development. The war in Ukraine also put a spotlight on energy and food exports from Brazil that can be supplied to Europe, he said.
In Argentina, if the government is able to implement fiscal and tax reforms, “there will be more activity and investment from Morgan Stanley as well,” Moore said. He praised the reduction in inflation, tax cuts and privatization plans that are underway. In Peru, Colombia and Chile, the idea is to “continue serving clients across our institutional and wealth businesses.”
With elevated volatility and expectations that interest rates will remain higher for longer than previously expected, structured credit can help clients reduce funding costs, Moore said. The integrated bank can also offer solutions across currency, rate and commodity exposures.
Morgan Stanley was among banks benefiting from the merger between Credit Suisse and UBS Group AG, since rich clients with accounts in both Zurich-based banks looked for diversification at competitors. On the other hand, Morgan Stanley lost a few advisers amid a regulatory review in recent years focused on whether the wealth-management business was taking adequate measures to prevent money laundering by wealthy clients from outside the US.
Morgan Stanley, which serves rich Latin Americans from offshore wealth-management booking centers such as New York and Miami, is planning to keep expanding that business, after the unit doubled its revenue in the past seven years, Moore said.
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