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Market Review: Latin America
In May, the Latin American market, represented by the MSCI Latin American index, fell 8.6%, its largest monthly decline since January 2010. The Brazilian market fell the furthest, dropping 10.5%, and was followed by the Mexican market’s decline of 6.5%. Appreciating 3.0%, the Peruvian market posted the only increase in the region.
Global markets began to unravel in mid-April as investors became concerned with the Greek fiscal crisis and its spillover effect on some of its debt-plagued European neighbors. In addition, China’s announcement that it would tighten its monetary policy to moderate the country’s growth could derail the frail recovery of global economies. A slowdown in Chinese growth was of particular concern to Latin American investors, since it could result in a decline in demand for Latin American commodity exports. As a result from April 14 until May 20, which encompasses the most severe period of the recent global market decline, Latin America’s fall of 20.6% surpassed the decline of the developed and emerging markets, which fell 13.8% and 15.3%, respectively.
The relatively low debt posture of Latin American economies, companies and consumers should protect the Latin American countries from the worst ramifications of investor’s renewed focus on leverage. As experienced in the Global Credit Crisis of 2008/09, Latin American economies remained relatively unscathed. Although their markets fell tremendously at first, they bounced back strongly as investors became aware of the improved economic posture of the region. A bigger concern for Latin American markets is the popping of a potential Chinese property and construction bubble, which could reverse commodity price growth and negatively affect the commodity heavy market indices of Latin America. However, this would be more of a market than an economic effect, since Latin American economies are more domestically driven than export based.
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