A Decade of Up

Champagne toasts were in order for investors in Latin American stocks as 2009 closed a decade of spectacular performances. Colombia’s IGBC and Peru’s IGBVL indexes both closed up more than 800 percent on Dec. 31, 2009 compared to 10 years earlier. Brazil’s Bovespa index closed 312 percent higher and Chile’s IPSA index rose 232 percent during the same period.

The performances of Latin America’s bolsas were all the more striking given that the U.S. stock market ended the decade in negative territory — its worst performance since the Great Depression of the 1930s.

While early in the decade the U.S. and Latin American stock indexes marched in unison in a dismal performance, by mid-decade the stock exchanges in the region had pulled away from the U.S.

Investors pulled money out of Wall Street and into emerging markets, which attracted some $42 billion in 2009. There are murmurs about a possible bubble in these markets, which are sometimes dependent on a handful of companies. Peru’s IGBVL, for example, is 60-percent comprised of mining stocks.

According to Citi equity research, the Latin American equity markets bottomed out in October 2002 and then rose 833 percent to their peak in May 2008. By comparison, emerging markets as a whole rose 382 percent during the same period, according to Citi research. They finished 2009 up 98 percent and 74 percent, respectively.

Geoffrey Dennis, Global Emerging Markets strategist for Citi, credits the strong performance in emerging markets to the explosion in commodity prices, driven by demand from China and India, and the fiscal and monetary policies taken by Chile, Peru, Colombia and Brazil. Those countries “globalized” their economies, Dennis said, and unlike Mexico — whose economy is so closely linked to the fortunes of the United States — they have weathered the global recession better than most Latin American nations.

Jacobo Gadala-Maria, CEO of Miami-based PRS Investment Advisory, called the best-performing Latin America countries good places for investing. The region’s best markets provide stronger legal protection for investors than some neighbors, they are investing in infrastructure and nearly all have growing populations, he said.
Gadala-Maria said that the region’s markets overcame an early stumble in 2002, when global investors grew concerned over the election of Brazilian President Luiz Inácio Lula da Silva, leader of the left-of-center Workers Party.

But Gadala-Maria described the election of Lula “as absolutely a life changer” adding it took a year for Brazil’s stock market to begin its march up — pulling much of Latin America with it.

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