Mexico: Evidence of reform success – Sophie Whitbread, portfolio manager covering global emerging markets at Newton Investment Management

“Generally we think emerging market countries that have been able to carry out reform look favorable, and Mexico has been at the forefront of that. The country’s tax system, electricity utilities and telecoms sector have all been liberalized since the election and the results have been overwhelmingly positive. The most significant area of reform, however, is in the energy sector.
 
“One question for investors is whether the current reforms are sufficiently 'sticky' to outlast the next general election, while all three of the country’s main political parties remain committed to improving GDP, the picture on reform remains nuanced. In my view, the most likely outcome is for a less powerful majority for whichever party wins power.”
 
Colombia: Fiscal reform - Rodica Glavan, emerging market debt portfolio manager at Insight Investment

“The administration of President Juan Manuel Santos has taken the right steps to mitigate the impact of the decline in the oil price on the economy, by letting the currency act as the main shock absorber while also cutting expenditure to offset lower revenues from commodity-based activities. 

“Even so, the government will need to emulate its regional peers in pushing for wider liberalization if it wants to build on recent progress. Economic imbalances have not been fully addressed and more needs to be done, particularly in terms of fiscal reform. Inflation now appears to be peaking, and the central bank may be nearing the end of the hiking cycle. As such, we would argue local rates look attractive.
 
“One potential bright light is a structural fiscal reform package that is expected to be passed later this year. This could significantly improve Colombia’s fiscal sustainability in the medium term and allow it to keep its investment-grade rating.”
 
Venezuela: On the brink - Javier Murcio, portfolio manager for emerging markets at Standish Mellon Asset Management

“In our view, they don’t have the resources to support payments in the short term. I think the likelihood is very, very high, that some type of credit event will happen this year. Rather than a default the government and their national oil company, PDVSA, will seek to postpone the maturity of debt when it can no longer make payments on it. They may look to extend the maturity of bonds that are due this year or next year to 2018 or 2019. The government of President Nicolas Maduro has already sought to buy time by using a variety of mechanisms such as gold reserve sales and the transfer of oil reserves to secure infusions of cash from China.”