Week 8, 2025 - Latin America

"The true hero is modest and humble." - José Trinidad Reyes (Honduran author)

MARKETS

February 21, End Of Day

• Argentina S&P MERVAL Index = 2,410,220.95 (YTD = -6.67%)
• Brazil BOVESPA Index = 127,600.58 (YTD = 6.08%)
• Chile S&P IPSA Chile = 3,927.24 (YTD = 8.65%)
• Colombia MSCI COLCAP = 1,634.61 (YTD = 18.49%)
• Mexico IPC Mexico BMV = 54,303.93 (YTD = 9.86%)
• Peru S&P/BVL Peru = 29,211.37 (YTD = 0.86%)

BUSINESS

Panama Canal: A Strategic Trade Route

The Panama Canal remains one of the world’s most critical trade routes, facilitating 5-6% of global trade and serving as a key link between the Atlantic and Pacific Oceans. However, recent geopolitical tensions, climate challenges, and economic pressures are reshaping its role in global supply chains.

1. Economic & Trade Impact

• Essential for Latin America-U.S.-Asia trade, but 2023 droughts reduced capacity by one-third, increasing global transport costs by $1.1 billion per year.
• China and the U.S. both see the canal as vital for trade dominance in the region.
• Handles 40% of U.S. container traffic and generates $2.5 billion annually for Panama.

2. Geopolitical Tensions: U.S. vs. China

• U.S. built and controlled the canal until 1999, seeing it as a strategic military and economic asset.
• Trump has threatened to “take back” control of the canal, citing concerns over Chinese influence. China’s growing regional investments raise concerns about strategic control over trade flows.
• China operates ports near the canal but does not control the waterway itself.
• Panama asserts its sovereignty, rejecting outside interference while maintaining economic ties with both superpowers.

3. Climate & Infrastructure Challenges

• The canal relies on freshwater from Gatún Lake, but prolonged droughts are limiting operations.
• The Panama Canal Authority is investing $2 billion in new reservoirs to ensure long-term sustainability.
• Without climate resilience measures, the canal’s future as a global trade hub is at risk.

The Panama Canal’s future depends on how it navigates geopolitical pressures, climate challenges, and economic shifts. While its neutrality is key to global stability, long-term climate risks and security concerns could reshape global trade dynamics.

CURRENT AFFAIRS

Brazil: The Treasury raised $2.5 billion through a 10-year dollar bond with a 6.75% yield, reinforcing its strategy to enhance external debt liquidity. Led by Bradesco, JP Morgan, and Morgan Stanley, the issuance comes as Brazil’s five-year CDS has improved over 20% this year. The move follows December’s market volatility triggered by fiscal concerns and Trump’s election. The government plans further sovereign bond issuances in 2025.

Argentina: President Javier Milei is expected to discuss U.S. aluminum tariffs during his visit to Washington, where he will meet with Elon Musk, the IMF chief, and coincide with President Donald Trump at CPAC. The tariff hike from 10% to 25% has raised concerns in Argentina, particularly in Chubut province, home to aluminum producer Aluar. Argentina’s Congress is also set to debate a “Green Hydrogen Law,” which could unlock $10 billion in investments, including potential projects from Polish firm Green Capital.

Guyana: The government will soon sign an oil deal with a TotalEnergies-led consortium, expanding exploration beyond ExxonMobil. It also plans to finalize three more contracts from the 2023 auction and reoffer the Corentyne block after rejecting Frontera-CGX’s license renewal. Now Latin America's fifth-largest crude exporter, Guyana expects production to hit 675,000 bpd in 2025, with Exxon’s new facility starting in Q3.

FURTHER READING

Check our recently published insights here. Recent post:

???? The Potential of Green, Social & Sustainable Bonds in Latin America

• Untapped Market – Latin America accounts for only 2% of the global green bond market, despite significant renewable energy resources and sustainability needs.
• Rising Demand – Green bond issuance is expected to grow, with sustainable bonds projected to make up over 30% of total bond issuance in 2024.
• Leading Countries – Brazil, Chile, and Mexico are at the forefront of green bond issuance, driven by banks and government initiatives.
• Barriers to Growth – High issuance costs, regulatory uncertainty, and political risks remain challenges for scaling the market.
• Opportunities – Expanding green bonds into sectors like agriculture and water management, strengthening public-private partnerships, and adopting new instruments like sustainability-linked bonds (SLBs) can drive future growth.

?? Read more here.