Latin America has become a rare refuge from this year’s fall in global equities as stock markets in the region benefit from rising commodity prices and traders are looking for a bargain.
The MSCI Latin American Index has climbed more than 15% so far in 2022 in US dollar terms, while any other regional sub-index of emerging and emerging markets has declined. The MSCI All-World Index, a broad barometer of equities in emerging and emerging global markets, fell more than 10% on the same basis.
The region has “a lot of wind in the sails” after what has been a “difficult number of years,” said Ed Kochama, portfolio manager for BlackRock Latin American stock funds. “It was a perennial period of underperformance and [now] It will probably be more than a year of better performance, “he added.
Latin American markets started 2022 on a strong footing thanks to a combination of cheap valuations, a relatively relaxed political environment and rising commodity prices. The MSCI Latin America Index is priced at 8.6 of expected earnings next year, about half the value of the Worldwide Index, according to Bloomberg data.
The rises in shares for foreign investors were also complimented by the rise in Latin American currencies, which contributed to about half of the year’s returns.
Foreign investors have driven the gains, pouring $ 75 billion into the B3 stock in Brazil alone so far this year, according to Bank of America analysts, even as domestic investors went out of stock in favor of fixed income. By comparison, European equity-held funds, which are seen as heavily exposed to the crisis in Ukraine, raised $ 13.5 billion a week until March 9 – the largest redemptions recorded, according to EPFR data.
“Investors are rushing to find places that will enjoy higher commodity prices and be isolated from geopolitical risks,” said Gustavo Madeiros, head of research at Ashmore, an asset manager focusing on emerging markets.
“Obviously there are risks that will be important to monitor, but from the point of view of valuing assets in Latin America there is a lot of room to go on.”
The crisis in Europe has led to extraordinary rallies in a range of commodities, from oil to metals to wheat. All components of the Latin American index are exporters of goods and Brazil, which accounts for almost two-thirds of its weight, is in a particularly good position to make a profit.
In addition to the economic consequences of the war, Latin America also benefits from changes in the structure of the world market. Analysts at Itaú Unibanco estimate that the decision to expel Russia from MSCI’s emerging markets index could lead to an additional inflow of up to $ 2.1 billion, as investors following the index redeploy funds to other markets.
Rising food prices increase the risk that inflation rates will start to rise further, and political uncertainty is expected to rise with the upcoming presidential elections in Colombia and Brazil. However, investors have so far been unmoved by the prospect of the return of former Brazilian left-wing President Luis Inasio Lola da Silva, who is ahead of incumbent Jair Bolsonaro in opinion polls.
Frederico Sampaio, chief executive officer of Franklin Templeton in Brazil for equities, said “the good news at least is that the two leading candidates are known” as they have previously ruled.
“Surprise will seem like the opposite risk: a candidate from the third way seems unlikely at the moment, but not impossible…[and]Will be welcomed by the market. “
Latin American stocks shine in gloomy year for global markets Source link Latin American stocks shine in gloomy year for global markets