Suddenly Latin America is Red Hot

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Move over China, here comes Brazil.

Global stocks have outperformed domestics since last spring, mostly led by Chinese equities. But in the last week or so there’s been a sudden gush into a region that many traders may have forgotten: Latin America.

The region’s biggest economy has led the charge, with the iShares Brazil fund (EWZ) up 16 percent on the year. That noses it ahead of the China-tracking FXI fund, which was the leader through earlier this week. Other countries like Colombia (GXG), Chile (ECH), Peru (EPU) and Argentina (ARGT) have also broken out to new multiyear highs and are doing better than S&P 500 so far in 2018.

RadarScreen showing select ETFs with year-to-date performance

A few factors seem to be driving the move. First, global economic growth has been improving. Just ask the International Monetary Fund, or World Bank, or just about any other measure of business anywhere on the planet. Second, the U.S. dollar has been pushing lower. Third, Latin America has been underloved since 2011, when China slammed the brakes on its growth and the Greek debt crisis scared institutional money away from global stocks. Fourth, key export commodities like oil (@CL on the TradeStation platform) and copper (@HG), have been on the rise.

Some key events have also percolated beneath the surface. They didn’t get a ton of attention globally, but several were followed by market rallies.

In October, Argentina’s pro-business President Mauricio Macri won a political victory after his political party swept mid-term elections.

In December, Chileans sent billionaire businessman President Sebastian Pinera back into office. The bigger-than-expected victory represented a big defeat for the country’s left-leaning establishment. Later in the month, Brazil’s center-right President Michel Temer saw a spike in popularity and announced the country’s finances were doing so well he could spend an additional $1.5 billion.

On Wednesday, a Brazilian court upheld a corruption conviction against former President Luiz Inacio Lula da Silva. That will keep the socialist in jail and keep him from seeking reelection in October.

In closing, here are a few big Latin American winners so far this year:

  • Compania Siderugica (SID): The Brazilian steelmaker is up 37 percent.
  • Ecopetrol (EC): The Colombian oil driller is up 34 percent.
  • Petrobras (PBR): The Brazilian energy giant is up 29 percent.
  • Itau Unibanco (ITUB) and Banco Bradesco (BBD): The Brazilian lenders are up 27 percent and 26 percent, respectively.
  • GOL Linhas Aereas Inteligentes (GOL): The Brazilian airline is up 26 percent.
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