Update

Turning Pemex around is among Mexico’s most urgent needs. This doesn’t mean going back to some fictional heyday, but rather implementing a genuine corporate makeover to more closely emulate an efficient private sector company that is accountable to its shareholders (in this case the Mexican people). Righting Pemex has important implications for the broader economy and national budget and would address one of the most profound threats to Mexico’s economy. Petrobras serves as an example that radical change can take place relatively quickly and shows that a stronger more accountable company can exit a crisis. …


While it’s still a long way off, we believe markets will become increasingly focused on Mexico’s July 1st 2018 presidential elections. Of note, in Mexico’s electoral system one need only win a plurality of the vote in a single round. In 2012, Peña Nieto secured his presidential victory with a scant 38% of the vote. It is entirely possible that the next election could be won with an even smaller percentage. …


  • Mexico’s trade position with respect to oil has deteriorated significantly as a function of declining prices, falling production and a disadvantageous mix of high-value added refined imports versus low-value added exports.
  • Mexico’s swapping of unrefined exports for higher value refined product imports has resulted in Pemex becoming a NET IMPORTER since June 2015.
  • At its peak, Pemex generated over US$3 billion in monthly income from exports (net of imports). Recent data shows a net deficit position of -US$164 million on a 3-month moving average basis.
  • Absent a correction in oil prices, an increase in domestic production, or boosting refining capacity…

Brazil is Self-Immolating, Just in Time to Showcase Itself on the World Stage

Source: Sports Grid
  • The bottomless pit of bad policy perpetrated by the PT on Brazil appears to know no bounds
  • The transition from Lula to Dilma has instilled not only a sense of institutionalized corruption, but one of arrogance and entitlement
  • One of the first signs of bad policy was the administration’s crippling fuel policy that bankrupted the ethanol producers who invested heavily in the alternative fuel industry
  • Brazil’s government is hurtling itself through the motions of identifying and attacking corruption with no real end game
  • The government needs to establish a framework to encourage the elimination of corrupt practices without destroying the…

Source: IMF, The Economist

In 2015, EM growth is poised to put up its worst year in quite some time and estimates call for only a modest increase in 2016. Mexico and Peru are among the countries where we expect to see the strongest growth performance, with growth rates increasing by over 1% in 2016 versus 2015. That said, across the wide swath of countries on planet Earth, growth in 2016 is not forecasted to be materially different than in 2015. This highlights the general growth malaise that is currently infecting the world and remains problematic seven years after the Global Financial Crisis. While…


  • The global macro backdrop has overemphasized weakness in EM and underemphasized the exceedingly lackluster growth posted by developed markets
  • Despite downward revisions, EM GDP growth will outpace DM growth by 2.0% in 2015
  • Global growth has been overly reliant on China and needs to diversify
  • 7 years after the Financial Crisis, developed nations need to put up genuine growth numbers
  • This will require meaningful reforms currently not on the table, most notably, pension reform
  • Given that most DM countries are theoretically coming off a low, their recoveries have been not just less than spectacular, but generally less than mediocre
  • Econ…

The emerging market fixed income asset class is composed of sovereign and corporate debt denominated in both hard and local currencies. Over the last decade, issuance trends have seen corporate hard currency debt become the largest segment of the EM fixed income market. Today, hard currency corporate bonds represent 72.9% of the hard currency EM bond market and sovereign hard currency debt is only 27.1%. For analyzing performance, the most commonly used EM corporate credit indices are the JP Morgan CEMBI family, the BAML EMCL and the Credit Suisse EMCI.

EM spreads are currently high by historical standards. In the…


  • Mexico’s trade position with respect to oil has deteriorated significantly as a function of declining prices, production and the mix of imports versus exports
  • Mexico’s swapping of unrefined for refined product has resulted in a decline of the windfall to Pemex from the export of oil into negative territory
    At its peak, Pemex generated over US$3 billion in monthly net receivables, now, the company is hitting just US$189 million for the 3 months ended June 2015, with most recent data actually shifting from net exports to net imports
  • Absent a major correction in either oil prices, domestic demand or domestic…

  • There is a lack of yield in ‘core’ fixed income strategies, especially when looking at key benchmarks like the Barclays Agg (2.4%) and the Barclays U.S. Corp Credit (3.4%)
  • EM Credit (green bars) offers yields ranging from 5.0% to 9.8%
  • Despite downward revisions to global growth and weakening fundamentals, EM GDP growth will outperform the developed world by 1–2% in 2015
  • The EM Fixed Income market has grown to a market capitalization of US$1.8 trillion
  • EM remains an underallocated asset class and this technical factor should lend ongoing support over the long term
Source: BAML, JP Morgan, Barclays, Federal Reserve as of 6/30/15

In Fixed Income Markets, EM Offers the Highest Yields

Looking across the fixed income markets, one…


If it keeps on rainin’, Levy’s goin’ to break,

When the Levy breaks, I’ll have no place to stay…

…cryin’ won’t help you, prayin’ won’t do you no good,

When the Levy breaks, mama, you got to move.

Led Zeppelin (with some creative license)

Summary: Brazil looks bad; so bad in fact that an often blindly optimistic populace is actually seeing the dark side. Macro statistics, principally the fiscal deficit and GDP growth, are abysmal and it is hoped that Q3 will mark a turnaround. Finding an economic bottom and marking a turnaround hinges on two contentious and highly uncertain…

Vaquero Global Investment

Vaquero Global Investment LP is a San Antonio-based investment manager focused on emerging market credit opportunities, with an emphasis on corporate finance.

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