With one month on the calendar until the end of 2024, Latin American stocks remain in negative territory for the year, while the rest of emerging markets are on a better path. The price of indices in these developing markets saw falls during the year, although they eventually managed to turn around.but Latin American stock markets do not follow this same behavior and their prospects seem complicated by the imminent return of Donald Trump to the White House.
The benchmark index which measures the evolution of the five countries of the New Continent which are part of the benchmark index of emerging markets – the MSCI Emerging Markets Latin America index, which includes Brazil, Chile, Colombia, Mexico and Peru – falls every year. The index falls 18.5% from the levels at which the year beganup to the 2,130 points it is currently trading at.
This index started 2024 at 2,662 points, but market consensus expectations collected by Bloomberg are below these levels. Analysts believe that the potential of this selection For the next few months, it is 21%at 2,630 points, close to this level at the start of the year. And the expected recovery after a tumultuous first half full of electoral dates in a large part of emerging countries has not arrived for its Latin American counterparts. It is for this reason that the selective index of developing countries, the MSCI Emerging Markets, increased by 11.4% over the year.. From these levels, emerging countries have a lead of 20%.
Senior asset allocation strategist at Santander Asset Management, Tomás García-Purriños, comments that “indeed, there has been a lot of divergence in performance between the different emerging regions” during this year 2024. García-Purriños believes that “the fact that in general, Asia has led the rise in stock markets this year, compared to some lagging Latin American countries, explains much of the behavior of the general emerging index“, due to the “greater weight of Asia, which represents more than 80% of the index, while the emerging markets of Latin America barely exceed 7%, with Brazil 4.7% and the Mexico 1.8%.”
And the stock market of the two Latin American countries continues to have a negative price throughout the year, MSCI Mexico drops 21%, compared to 20% that MSCI Brazil falls. The strategist also highlights the depreciation suffered by the currencies of the two countries throughout the year. “In the case of Brazil, this would be mainly explained by two reasons: first, a weak fiscal situation and, second, some uncertainty regarding monetary policy after the change of the members of the Brazilian monetary authority. have weighed on the price of raw materials, which are very important in Brazilian exports,” adds García-Purriños.
The consequences of Trump
While “the depreciation of the peso would be justified by reasons similar to those which would have affected the evolution of the multiple (political and economic uncertainty)”, estimates the analyst. It should be noted that last Tuesday, the day of the American elections, the peso reached its lowest level in the last two years, while the dollar began its course. the biggest bullish rally since 2020which leads to greater weakness in these economies.
And the return of Donald Trump to the White House does not help the prospects of Latin American economies either. The macroeconomic analyst at Generali Investments, Guillaume Tresca, previously assured the Republican’s victory that it was “the worst possible scenario” for emerging market assets and would trigger a strengthening dollar, upward pressure on policy rates and changes in trade policy.
While Wall Street was full of euphoria in the aftermath of the election, emerging markets were falling at the sight of higher tariffs from the United States, with China being the hardest hit. But Mexico won’t be saved in this case either, comments J. Safra Sarasin emerging markets economist Mali Chivakul, because “although it is difficult to calibrate the level of tariff increases, estimates have taken the face value of what Trump often mentioned during his campaign: customs duties of 60% for China and 10% for everyone“.
“Apart from China, Mexico is the country most vulnerable to across-the-board 10% tariffsgiven its high exposure to the US market,” says Chivakul, and “beyond the trade impact, it would also be affected by the stricter US immigration policy.” Moreover, “as during the previous Trump presidency, “Mexico is likely to face economic threat, as well as stricter border controls.
On the other hand, “commodity producers like Brazil, Chile, Peru and South Africa are relatively less directly exposed to the US market. China’s retaliation in 2018, in fact, They increased Brazil’s agricultural exports, which could be repeated. They will be especially affected by the slowdown in global growth and the drop in demand for raw materials. India and Indonesia, with a more domestic economy, are also better protected from the direct impact of customs duties,” continues the economist at J. Safra Sarasin.
However, García-Purriños has “neutral” expectations regarding Latin American actions, since these countries can benefit from a boost from China thanks to the recovery plan to reactivate their economy, if “the measures of their government had an effect on growth”, and we would see “better behavior of industrial metal prices”. The latter is particularly positive for Brazil, since by increasing the value of its materials, it could “put a floor on the depreciation of realityas the central bank gained credibility,” he underlines.
From there, estimates the Santander analyst, “this could also start to weigh upwards on the MSCI Brazil multiple”. in a context of positive economic growth which would support a recovery in profits”, but with a significant risk for the budgetary situation of the country governed by Lula da Silva, given “doubts about achieving the primary objective of zero deficit in 2024”.
On the other hand, for Mexico, he affirms that “the possible consequences of a Trump victory could continue to weigh on the multiple”. would be in the renegotiation of the North American Free Trade Agreement (United States, Canada and Mexico), which is expected to be revised in 2026 (in accordance with the clauses of the treaty itself). The objective of the renegotiation would be in the content source part, cars and energy”. But, he specifies, “despite the above, in the medium and long term, This could also open up a significant opportunity due to the repositioning of supply chains. (relocation)”.
Investment vehicles
This negative year for stocks in these regions has wreaked havoc on investment vehicles that bet on Latin America: they all accumulate losses in 2024. The most affected is the BCF Latin American E2, managed by BlackRock, with a drop of 20% Its profitability, even if we look at its annualized performance over three years, is the highest of all: 18.3%. The fund that lost the least was EDM Intern. Latin Am Equity R EUR, with a drop of 11.7%, in three years it is down 4.6%.
