FLLA - Latin America: Tailwinds Present Ample Opportunities In 2024

2023-12-26 04:12:00 ET

Summary

• In 2023, Latin American equities staged a remarkable performance, surpassing their emerging market peers and global equity benchmarks.
• Latin America is well-positioned to benefit from the global transition to cleaner energy - greater electrical vehicle adoption will require immense amounts of battery-critical lithium, and over 50% of global lithium resides in Latin America.
• Despite emerging markets’ inherent risks, Latin America’s policy backdrop and discounted valuations suggest investors should consider the region within a strategic asset allocation.

By Seema Shah, Chief Global Strategist

Latin American equities have soared in 2023, raising questions about their sustainability in 2024. However, several factors suggest this robust performance can continue in the year ahead, making the region a potentially attractive option within a strategic asset allocation.

Latin America and emerging markets performance

2023 year-to-date, total return in USD

In 2023, Latin American equities staged a remarkable performance, surpassing their emerging market peers and global equity benchmarks. Heading into 2024, however, investors must determine whether this impressive market run can endure or if it's merely an aberration. Our analysis has highlighted five reasons that suggest performance can be maintained.

1. Several Latin American central banks are already cutting policy rates and are set to continue easing in 2024.
2. Following recent populist elections in Brazil, Chile, Mexico, and Columbia, investor concerns around misguided policies and economic mismanagement have proven unfounded.
3. The region offers deep valuation discounts, as Chile and Brazil are cheaper today than 90% of their histories.
4. Latin America is well-positioned to benefit from the global transition to cleaner energy - greater electrical vehicle adoption will require immense amounts of battery-critical lithium, and over 50% of global lithium resides in Latin America.
5. Global supply chain reshoring and foreign direct investment are advantageous for the region, with U.S. goods imports from Mexico recently overtaking China for the first time since the early 2000s.

Despite emerging markets’ inherent risks, Latin America’s policy backdrop and discounted valuations suggest investors should consider the region within a strategic asset allocation. Profitable growth prospects and an opportunity to gain exposure to regional secular tailwinds are on the horizon in 2024.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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