Political Risk Latin America Blog @PolRiskLatam

Latin America finance: League leaders

Posted in News and Articles, Political Risk by politicalrisklatam on December 9, 2010

by The Economist Intelligence Unit, December 7th, 2010.

Many of the world’s most buoyant stockmarkets this year are in Latin America. Can they maintain the momentum?

By most measures, Brazil weathered the global financial crisis better than almost any other major economy. Amidst the economic turmoil in North America and Western Europe, Brazil saw its reputation enhanced among international investors. But when it comes to recent stockmarket performance, the São Paulo exchange is a laggard in comparison with some of its neighbours.

So far this year, investors have been richly rewarded in places like Chile, Peru, Colombia and even Argentina. In Bogotá, the IGBC index is up by 33% through early December. In Santiago, the IPSA has gained 39% over the same period, while the Merval in Buenos Aires has added 48%. But even these impressive performances have been surpassed by Lima’s red-hot IGBVL, up by 53% year-to-date. And it gets even better for investors looking for dollar returns, as local currencies in Latin America have been appreciating against the greenback.

Each market is driven by unique factors, but certain global and regional trends also play a part. For all of the top performers, recent robust returns fit the established narrative of how emerging markets are detaching themselves from developed countries and will drive the global economy forward, at least in the short term. The appetite for Latin American commodities from China and other fast-growing economies in Asia also contributes to the bullishness. At home, credit is flowing reasonably freely in many of the countries topping the stockmarket league tables, helping to fuel domestic consumer spending.

All of these factors apply to Brazil, but the broad-market share index in the region’s most-hyped economy has nevertheless underperformed its neighbours, and even registered weaker growth than markets in the stricken US and UK this year. The novelty of investing in Brazilian equities may have worn off a little, as international investors have already been flocking to the country for some time. The introduction of taxes on foreign capital flows has also dented enthusiasm. (continue reading… )


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