What’s next for Latin America?

Latin America’s shifting political winds have stirred broad market uncertainty–as well as select opportunities for investors. Martin explains how to get granular with country ETFs.

If you’re an investor, there’s a lot to fret about in Latin America right now. NAFTA’s future is up in the air. The region’s two largest economies–Mexico and Brazil–have elected or are likely to elect populist presidents. Argentina is struggling with a massive financial squeeze and a run on its currency. Venezuela’s terrible humanitarian crisis has led to riots and massive emigration into neighboring countries.

Complicating matters is the strengthening U.S. dollar, which has put pressure on the cost of financing economic growth and on stock prices. You can see the impact of the latter in the charts below, which compare hedged and unhedged versions of the iShares MSCI Mexico ETF (EWW, HEWW) with the broad iShares MSCI Emerging Markets  ETF (EEM, HEEM)


Performance data represents past performance and does not guarantee future results. Investment return and principal value will fluctuate with market conditions and may be lower or higher when you sell your shares. Current performance may differ from the performance shown. For most recent month-end performance and standardized performance, click here.


Performance data represents past performance and does not guarantee future results. Investment return and principal value will fluctuate with market conditions and may be lower or higher when you sell your shares. Current performance may differ from the performance shown. For most recent month-end performance and standardized performance, click here.

Here’s the question: Is it time to step away from the region, or should you stick with it and climb the wall of worry until the situation improves?

icon-pointer.svg Follow Martin on Twitter.

Shifting spheres of influence

That was the crux of a discussion I recently moderated, with a panel of experts that included Axel Christensen, BlackRock’s chief investment strategist for Latin America and Iberia, and several asset allocation specialists. Together, they provided a rich perspective on how they’re thinking about the region. Here are the main takeaways:

1. Brazil may be oversold.

We routinely forget that Brazil is the size of the continental United States. And, similarly, it has a vast array of sub-economies and growth opportunities dispersed across a large landmass. All of our panelists agreed that Brazil currently appears to represent Latin America’s most attractive investment opportunity. Despite the political turmoil (former president Lula da Silva is campaigning from prison), the central bank has managed to keep the currency relatively stable and inflation within a reasonable range.

2. China’s influence is strong in the region.

China has long looked to South America for its natural resources, and its influence could grow, particularly amid the current trade reshuffling. To take just one example, China’s new tariff on U.S. soybeans could be a boon for Brazil’s agricultural sector.

3. Domestic investors are having their say.

Equity markets in Latin America have traditionally been driven by foreign investors, but that balance is changing as the domestic investment culture grows. Local market participants, who have more skin in the economic game, are adding new perspectives and pricing information to the mix. That diversity of interests can present opportunities.

4. From an investment perspective, there is no “Latin America.”

Stock prices in individual countries may move in lockstep for short periods, but they’re ultimately driven by distinct economic and political forces. As a result, it may make sense to view a region through a refracted lens.

This is true not just for Latin America, but for emerging markets overall. For example, a long-term holding like the iShares Core MSCI Emerging Markets ETF (IEMG) gives you comprehensive EM exposure in a single transaction. That type of broad exposure is critical for broad portfolio diversification, but it represents 24 economies, each developing at vastly different rates: think China (31% of the index, as of July 31) vs. Peru (<1%). So complementing the core with single country funds is an almost instant way to express a markets-driven view on an economy that might otherwise get lost in the broader mix.

The good news is that ETFs can help you get even more granular with your exposures, whether it’s the iShares MSCI Brazil Small-Cap ETF (EWZS) or the factor-based iShares Edge MSCI Min Vol Emerging Markets ETF (EEMV). Think of them as precision hardware if you decide to climb that wall of worry in uncertain times.

Read more about iShares’ view on the impact of Mexico’s presidential election.

Martin Small is the Head of U.S. iShares and a regular contributor to The Blog

Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.

Investing involves risks, including possible loss of principal.

International investing involves special risks including, but not limited to currency fluctuations, illiquidity and volatility. These risks may be heightened for investments in emerging markets. Small-capitalization companies may be less stable and more susceptible to adverse developments, and their securities may be more volatile and less liquid than larger capitalization companies.


The iShares Currency Hedged Funds’ use of derivatives may reduce a fund’s returns and/or increase volatility and subject the fund to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligation. A fund could suffer losses related to its derivative positions because of a possible lack of liquidity in the secondary market and as a result of unanticipated market movements, which losses are potentially unlimited.  There can be no assurance that any fund’s hedging transactions will be effective.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective. The information presented does not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision.

This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

This document contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.

Diversification and asset allocation may not protect against market risk or loss of principal.

The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

©2018 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.