Latin American Scorecard: Q4 2017

Latin America closed 2017 on a high note. This is the annual edition of this report where we will review the 2017 performance of country and regional indices, as well as the best performers and those that lagged behind.

Latin America’s annualized returns, as measured by the S&P Latin America BMI (the broad regional index) and the S&P Latin America 40 (the narrow, blue-chip index), have even surpassed the S&P 500 and the S&P Global 1200, which measures the 1,200 largest, most liquid companies from around the world. Latin American regional and country indices are now showing two consecutive years of positive double-digit returns, bringing their three-year returns into positive territory. There is still some ground to cover before the 5- and 10-year returns also move to the positive side, although the gap is closing.

Despite political challenges in Brazil, elections in Chile, natural disasters in Mexico, and extraordinary circumstances of corporate corruption that affected the entire region from top to bottom, all stock markets in the region fared exceptionally well in 2017, as reflected by their respective country indices: the S&P Brazil BMI, S&P Chile BMI, Mexico’s S&P/BMV IRT, S&P Colombia BMI, and S&P/BVL Peru General. In particular, the three largest markets had the biggest impact on regional returns. Brazil, which represents nearly 58% of the S&P Latin America BMI, had an annual return of 26.1%. Chile, the third-largest market in the region by weight, had an annual return of 45.2%. Mexico, the second-largest market in Latin America, representing nearly 24%, generated a strong return of 11% for the year. Argentina was the monster (in a good way) of the region. Because the market is classified as a frontier market and not emerging, it is not currently considered part of the S&P Latin America BMI; however, it merits mentioning that its performance for the year was outstanding, at 73.1% in USD and 106% in ARS.

So, what were the drivers? Based on historical data, Latin America was the last region to catch up with other global markets. Positive global investor sentiment, good corporate valuation, along with many other accommodative financial factors (such as low market volatility, as measured by VIX®, low interest rates, low inflation) and rising commodity prices (such as gold and oil) contributed to the markets performing well in 2017. In Latin America, only 58 out of 285 companies in the S&P Latin America BMI had negative one-year price returns. This means that 85% of the companies in the index yielded positive returns. As of year-end 2017, the top 28 stocks, representing 50% of the index, had an average annual return of nearly 36%.

Economic growth has picked up in Latin America based on Q3 2017 data. GDP for the region has expanded at a stronger rate since Q1 2014,[1] leaving the previous year’s recession in the past. While analysts expect the economies to continue to grow, there is some hesitation on these projections, given the major elections coming up for Brazil, Colombia, and Mexico. New administrations can either help or hinder the necessary economic policies to continue the region’s expansion. While they seem confident, market participants are taking a moment to see what the approach will be for 2018. This certainly will be an interesting year for the region.

To see more details about performance in Latin America, please see: S&P Latin America Equity Indices Quantitative Analysis Q4 2017.

[1] Focus Economics, “Economic Snapshot for Latin America,” Dec. 7, 2017.

The posts on this blog are opinions, not advice. Please read our disclaimers.

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