What Really Drives Latin American Equities

southamerica

Latin American equities have been on a wild ride in recent years. After heavily underperforming global equity markets until 2015, their fortunes have turned. As pointed by Deutsche Bank AM, the MSCI Latin America Index is up by more than 20% in 2017. They explain that frequently cited reasons for this include political developments in Brazil or expectations about the future path of U.S. trade policy as major drivers for the region’s equity markets. However, a closer look at correlations reveals a different story, as our “Chart of the Week” shows: Comparing the performance of Latin American equities with the MSCI ACWI Metals and Mining Index, one can observe quite a high correlation.

This is all the more surprising, as the overlap between the two indices is rather limited. Hence, investing in Latin American equities seems to be much more a bet on the metals and mining sector than a play of local politics.

 

cid:image005.png@01D32312.05753FF0

Sources: Bloomberg Finance L.P., Deutsche Asset Management Investment GmbH; as of 8/30/17