Under the Left, Brazil and LatAm Have Become an Investors’ Paradise

This was supposed to be a difficult year for investors in Latin America, as many countries in the region, including Brazil and Mexico, the two biggest, went to the polls. Fears of a swing to the left were mostly realized.

Radical leftwingers Ollanta Humala in Peru and Andrés Manuel López Obrador in Mexico missed out but only by very narrow margins.

Elsewhere the continent saw the left return in Chile, the re-election of Luiz Inácio Lula da Silva in Brazil, the return of the once-Marxist Sandinistas in Nicaragua, the nationalization of Bolivia’s gas reserves by Evo Morales, and the continuation of Hugo Chávez’s power in Venezuela. Guerrilla warfare drags on in Colombia.

So how is it possible that Latin America’s markets have logged better performance than any other region of the world?

The Morgan Stanley Capital International Latin America index has gained 109.7% over the past two years.

The indices for Argentina, Brazil, Colombia and Mexico have all more than doubled in that period.

One explanation is that investors are too optimistic about the political risks.

Put more kindly, the populist surge throughout the region has been more responsible than feared. Lula understood that a return to inflation would hurt the poor, as did even López Obrador.

With economies in the region either fully dollarized, or with a floating currency, the risk of foreign exchange crises is lessened. Several countries, notably Mexico, have also reduced their reliance on dollar-denominated funding.

But the fact remains that this market growth has been achieved without particularly strong economic growth to back it. With 24 per cent of the MSCI LatAm index in materials, perhaps the key driver has been the commodities boom.

Yesterday’s sharp fall in metals prices triggered a 3 per cent fall in CVRD, the Brazilian mining concern, which accounts for almost 15 per cent of the country’s Bovespa index.

That index is off 2.75 per cent since a high last week. If commodities prices continue to return to earth, Latin American equity returns may well follow.

Financial Times

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  • Show Comments (4)

  • ch.c.

    fun fun fun !
    the article would be right…if it excluded Brazil, the country with the lowest growth rate of all developing nations, and the lowest growth rate of the whole LATAM and Caribean region…..after only HaÀƒ¯ti !!!
    Worse, 2006 will be a repeat of 2005, for the worst growth rate after HaÀƒ¯ti !

    Truly……NOT IMPRESSIVE…The Brazilian PERFORMANCES !
    Or truly….IMPRESSIVE….Your consitency of UNDERPERFORMANCES !
    You have the choice ! You simply have been beaten by everyone, in 1, 2 or 3 years time frame !

    Where everywhere in the developing nations and even poor countries, there was an BOOM during the last 3 years of well over 5 % on average, Brazil grew less 50 % of the average. Therefore in Brazil it was a BOOAAF growth….not a BOOM !

    The worst is that governments in Brazil delivering such a poor performance are considered the best and are re-elected !
    Therefore you should already know that the next 4 years should be more of the same :
    UNDERPERFORMANCE ALMOST GUARANTEED…..despite their rosy projections, which were as rosy but wrong during the last 4 years.
    Electing a bad coach and re-electing him wont make a winner, just as in a soccer tournament. And worse, if the coach chose bad players, results are usually even worse. And Lula is the coach of your nation, he even named the players….his gang
    of inept ministers !

  • Guest

    Sure for your only happiness useless! I bet you’ll die of alzmeir or something making justice to life on earth. Enjoy your decay Loli.

  • Polo

    Exactly, Guest. Enjoy your socialism!

  • Guest

    investors an public employees will dance the carival of the cheated, robbed and ignorant!

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