Last Friday, the MSCI EM Latin America Index gained for the ninth week running, marking its longest winning streak since 2017.
A largely overlooked region, Latin American equities, particularly Brazil and Colombia are drawing investor attention ahead of their respective Presidential elections. Investors are betting for a lower interest rate environment in the region, and a substantial shift in local policy. The US Supreme Court striking down Donald Trump’s global tariffs has added to the momentum in the region.
The US-listed ETFs of this region, a well-known instrument to gain exposure to the market has also reflective of the recent buying spree. Assets in the BlackRock iShares Latin America 40 ETF, saw inflows of over $1 billion in January itself, taking the total Assets Under Management (AUM) to $4.3 billion.Similarly, the iShares MSCI Brazil ETF, the largest US-listed fund tracking markets in Brazil saw its strongest monthly inflow in over a decade in January. Billionaire Stanley Druckenmiller’s family office also added to this ETF, before it jumped 17% in January. Part of the bet in Brazil is a potential defeat of President Luiz Inacio Lula da Silva in the upcoming elections.
“We don’t know who’s going to win, but if the opposition wins there is more to gain than to lose if Lula stays,” said Thierry Larose, a portfolio manager at Vontobel. Traders are also hopeful of the Brazilian central bank to reduce rates from the ongoing 15% level, the highest in nearly two decades, from as early as March.
Colombia is facing a similar story with analysts betting that a win for the right-wing will result in a boost to asset prices, but also warned that a win for the Left could result in a sharp deterioration in asset prices.
While foreign investors are piling into these gains, the local investors continue to remain wary due to the political uncertainties.
(With inputs from agencies)
