Latam Equity Markets: analysis, regional insights, and investment strategies
18 OCT, 2023
By BICE Inversiones
Latam Equity markets showed a -2.5% decline in USD in September, above EM and in line with developed market indexes. Within LatAm, most countries showed negative returns in USD led by Argentina (-13.9%), Chile (-7.0%), Mexico (-6.5%) and Peru (-4.8%).
The MSCI Latin America Index is currently trading at 8.7x P/E Fwd, which is still 37% below the last 5-year average (13.7x) and 31% below the Emerging Market index (MXEF). The risk premium of the MSCI LatAm index against de 10-year USD note (GT10) remained stable at 7.5% and is still above the last 5-year average (5.6%).
According to our LatAm regional top picks, we are currently favoring Financial (Itau Unibanco, BCI, Bancolombia, Patrimonio Autónomo Estrategias Inmobiliarias and Gentera) and Consumer Non-Cyclical companies such as (Cencosud, InRetail, Hapvida).
Brazil: Exchange rate stability, and the deceleration in wages have contributed to slow down consumer inflation, which is expected to fall to 3.3% next year. As a result, the Central Bank of Brazil reduced the interest rate to 12.75%, and we expect further cuts of 50 bp per meeting.
Chile: Recent activity figures strengthens expectations that BCCH authorities will continue with their cycle of cuts in their reference rate, taking it to the range of 8.0% to 7.5% at the end of the year, since it would no longer be necessary to produce a further fall in the activity.
Colombia: During October, the market’s attention will be centered on the results of the regional elections that will be held on October 29th and will be an important thermometer for the political support of the current national government.
Mexico: We expect Banxico to uphold its current stance in the upcoming meetings due to persistent inflation concerns. We anticipate the Central Bank to initiate rate cuts by the 1Q24 in order to prevent an excessive toll on aggregate demand.
Peru: Central bank started reducing its reference rate last month and we expect that this trend will continue in the next months with 25 basis points cuts per meeting. We expect the reference rate to end the year at 6.75%.
