How Investments in Latin America’s Stock Markets Have Fared Over the Past Year

Some markets have shown a better performance than others in the region during the last 12 months, with Colombia’s market seeing the sharpest drop

The Brasil Bolsa Bacao (B3) stock exchange in Sao Paulo, Brazil. Photographer: Patricia Monteiro/Bloomberg
September 08, 2022 | 04:30 PM

The last 12 months have been quite chaotic for international markets, with assets hit by central bank rate hikes and the impact of the Russian invasion of Ukraine. So much so that Wall Street’s S&P 500 index is down more than 13% over the past year, while the Nasdaq has plunged more than 23% during the period.

However, in much of Latin America things have been a little better, as some of the most heavily weighted stocks in the regional indices have benefited from the commodity rises generated by the war in Europe.

In this context, Bloomberg Línea analyzed what return could have been obtained with an investment of $1,000 in September 2021 in any of the main indices in the region, either through exchange-traded funds (ETFs), or assuming a theoretical investment that estimates that the positioning followed the weighting of shares that each index has.

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Among the countries analyzed -- Argentina, Brazil, Colombia, Chile, Mexico and Peru --, the best performance was delivered by shares in Argentina, Peru and Chile, while Colombia’s COLCAP suffered the biggest drop.

Regarding the two great economic powers of the region, Brazilian and Mexican stocks have shown a negative track record in the last year, but they have fared much better than those of the rest of the emerging economies.

Emerging market ETFs dropped by more than 28% between September 6, 2021 and September 6, 2022, but primarily due to the fall in Asian markets.

“In the last 12 months, emerging markets linked to China have fared very badly, because they are more related to what is happening in developed economies”, according to Santiago López Alfaro, president of brokerage firm Patente de Valores.

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“The rise in interest rates and the fall of assets in the world had a strong impact on them,” he added.

Furthermore, López Alfaro added: “As there was a rise in commodities at the same time, many Latin American countries benefited. That is why Chilean and Argentine stocks performed well.”

Stocks climb in Peru, Chile and Argentina

In a challenging context for the markets, Argentina’s Merval index had the best performance in the last 12 months, and if $1,000 had been invested in the index, proportionally to the weighting of the shares on it, the shares would today be worth $1,155.90, earning $155.90 on the invested capital, taking into account the period September 6, 2021 to September 6, 2022.

This calculation takes into account that the Merval advanced 80% in peso evalution, but the parallel dollar taken into account by Argentine investors rose 56%.

The Buenos Aires stock index reached close to $1,800 in January 2018, in a maximum in dollars, while as of September 6 of this year it has advanced around $484.49. However, despite that plunge, in recent months it has managed to recover somewhat and return to gains.

In the last twelve months, the ADR of state-owned oil company YPF, one of the most important shares trading on the Merval, rose 13% on Wall Street.

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Photo: Bloomberg
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In Peru, local stocks also brought gains in hard currency. An investor who invested $1,000 in shares traded on Lima’s Stock Exchange a year ago would have earned $124.78, or 12.48% in US dollars.

In the last year, Peru’s main stock index rose 6.41%, but the appreciation of the currency, the sol (which has riseb by 5% against the US dollar) makes the gain measured in US currency to be greater.

This good performance over the last 365 days was driven by a rise in some of the main Peruvian stocks. Shares of Banco Credicorp (BAP) saw the strongest gain, up 20% during the period.

A little further south, in Chile, the Santiago Stock Exchange also delivered gains to those who invested over the past year. An investor piling $1,000 into the IPSA index on September 6, 2021 would have seen a profit of $91.98 on September 6, 2022.

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In fact, the Chilean IPSA is up more than 26% compared to last year. However, when valuing the investment in hard currency, part of the gain is lost, as the dollar appreciated about 13% in that country over the period.

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A good part of this performance is due to the lithium boom, since the company Sociedad Química y Minera de Chile (SQM), dominant in the South American country’s stock market, saw its share price enjoy an extraordinary rise, with its shares traded on the NYSE gaining more than 95% during this period.

Photographer: James Attwood/Bloombergdfd

Investors’ real earnings in dollars were affected by US inflation.

Brazil and Mexico, in the red

The stock market indexes of the two main Latin American economies, Brazil and Mexico, have not delivered positive numbers in the last 12 months, however.

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A $1,000 investment in Brazil’s Bovespa would have seen losses of $80.86 over the last year. This does not seem to be a worrying figure when compared to what happened in large emerging Asian companies, which plummeted much more sharply, affected by rate hikes.

Losses by iShares MSCI Brazil ETF (EWZ), i.e. the Wall Street ETF that tracks the main Brazilian stocks, have been slightly more pronounced, with a drop of more than 16% over the cited one-year period.

The collapse in the share price of Brazilian multinational Vale (VALE), by 36% on Wall Street, has a strong impact.

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On the other hand, an investment of $1,000 in the Mexican Prices and Quotations Index (IPC) in proportion to the weighting of shares in the index, would have seen a loss of $133.46 this year, much more pronounced than that of Brazil.

“From the third quarter onwards, there has been an extremely accelerated fall [in the share prices of Mexican companies] and this has a lot to do with the fact that we are beginning to see pressure on the profit margins of companies, due to the increase in costs due to inflation and financial costs”, explained Jacobo Rodríguez, director of analysis at Black Wallstreet Capital.

Meanwhile, the ETF that reflects on Wall Street the direction of Mexico’s most important stocks, the iShares MSCI Mexico ETF (EWW) lost 11% in the last 12 months.

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Colombia, with the sharpest fall

Among the stock exchanges analyzed, a $1,000 investment in Colombia’s COLCAP index would have seen losses of around $214.91 over the last 365 days, as the index, measured in dollars, fell 21.49%.

Not only the index itself suffered a setback this year, but the appreciation of the dollar against the Colombian peso (up 17% during the year) would also have harmed the investment.

When asked why Colombian stocks have decoupled so much, Juan David Ballén, director of analysis and strategy at Casa de Bolsa, said the shares of oil company Ecopetrol (EC) have been impacted by the arrival of the new government.

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“In addition, the tax reform, which seeks to tax dividends and occasional profits, has discouraged local investors from buying shares,” Ballén said.

The Colombian oil company's shares have fallen over the past 12 months.dfd

As the analyst pointed out, Ecopetrol shares have suffered a 24% drop on Wall Street.

Beyond the specific case of Colombia, Ballén said the region’s stock markets have shown the best performance at a global level, however,, “due to the rise in commodities as a result of supply shocks and the war in Ukraine”.

However, he warned that “the withdrawal of monetary and fiscal stimuli in developed countries, in addition to the political risk in the region, have prevented an even better performance in the region, as they have prevented a greater inflow of capital”.

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