Bloomberg Línea — Over the last decade, Latin America has greatly diminished its relative weight in the world economy and a good way to understand the extent to which it has regressed is to observe how the importance of its two main economies, Mexico and Brazil, among emerging markets has fallen, and how Asia has gained ground.
Currently, the EMM exchange traded fund (ETF) that invests in emerging markets allocates only 7.35% of its holdings to Brazilian or Mexican companies. Meanwhile, 0.9% is divided among Chile, Colombia and Peru, which are the other countries covered.
- Brazilian companies account for 4.76% of the shares of this ETF (Vale has the largest weight)
- Mexican companies account for 2.59% of the ETF’s shares (led by América Móvil)
- Only 0.55% of EEM’s shares are positioned in shares of Chilean companies (the largest holding is in SQM shares)
- 0.26% of this ETF’s holdings are in Peruvian companies (the largest position is in Credicorp)
- 0.09% of the ETF is positioned in Colombian companies (with Bancolombia leading)
The manager of this fund is the US giant Blackrock, which also seeks to replicate the MSCI emerging market index with the EEM ETF.
Which countries are displacing the Latin American giants in the global economy? Emerging Asian markets. In fact, Asia accounts for almost 85% of the emerging market ETF’s holdings:
- 32.01% of the BlackRock ETF’s holdings are positioned in companies from China
- 15.51% in companies from Taiwan
- 13.13% in India
- 11.87% in South Korea
- 3.91% in Saudi Arabia
- 2.14% in Thailand
- 1.9% in Indonesia
- 1.45% in Malaysia
By way of comparison, an article published in February 2014 in FundsPeople showed that the MSCI Emerging Market Index, on which this ETF is based, at that time assigned a 20.1% weighting to companies from China and only 6.3% to those from India.
While the latter have increased notably in the last nine years, the opposite happened with Brazil, which at that time had a 10.51% weighting.
The weight of Mexico, meanwhile, was 5.39% and Chile 1.57%. In other words, all the Latin American countries in question have lost more than 50% of their weight in the weightings of this type in less than a decade.
“Asia is recognized for having a much higher productivity in its economies and for having economies that are much more concentrated in exports and efficiency, while Latin America is always two steps ahead and two steps behind,” said Diego Ferro, president of the M2M Wall Street fund.
In addition, Ferro considered that Latin America was affected by the strength of the US dollar in recent years.
“The only currencies that are holding up are the ones that really manage the economy very well,” Ferro said.
According to the IMF, Brazil’s nominal Gross Domestic Product represented 1.86% of the world economy in 2022, while in 2012 it had represented 3.27%.
Meanwhile, Mexico’s GDP represented 1.6% of the economy in 2012, and had dropped to 1.4% in 2022.
The Argentine peso, the currency of the region’s third-largest economy, also melted. In 2012, the country’s GDP accounted for 0.77% of the world economy and in 2022 its share was just 0.62% of global GDP.
As global GDP expanded during the last decade, Latin American GDP contracted.