Latin America: The Political Pendulum Swings Left

Latin America: The Political Pendulum Swings Left

Latin America carries a long history of polarized politics. From an economic perspective, generally speaking, this has translated into periods focused on spending, wealth redistribution, high taxes, and state influence over the economy vs. more traditional periods of fiscal orthodoxy, market liberalizations, and waves of privatization. After a period of center-right leadership across the region, each country has elected or appears on the verge of electing left-leaning leaders that can take their economies in different directions. However, when looking at valuations, it seems that investors have already priced in the worst. In this paper, we will walk through current and potential forthcoming leadership for each major economy across Latin America, along with their economic goals.

The views and information discussed are subject to change and may not reflect the current views of the writer(s). The views expressed represent an assessment of market conditions at a specific point in time, are opinions and may not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell securities or investment vehicles

Definitions 

Alpha measures the difference between a fund’s actual returns and its expected performance, given its level of risk as measured by beta. Enterprise value to earnings before interest, taxes, depreciation, and amortization ratio (EV/EBITDA) compares the value of a company—debt included—to the company’s cash earnings less non-cash expenses. Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. Kirchnerism is an Argentine political movement based on populist ideals formed by the supporters of Néstor Kirchner and his wife Cristina Fernández de Kirchner, who consecutively served as Presidents of Argentina. Although considered a branch of Peronism, it is opposed by some factions of Peronists and is generally considered to fall into the category of left-wing populism. MSCI Emerging Markets Latin America Index captures large and mid cap representation across 5 Emerging Market countries in Latin America. One standard deviation plotted above or below the average value on that normal distribution curve, would define a region that includes 68 percent of all the data points. Pink Tide is the tendency towards left-wing governments in Latin America. Price/earnings (P/E) ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings. Return on Equity (ROE) is a measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders’ equity.

Investment Considerations — There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including the potential of loss of principal.

Emerging Markets Risk — The risks of foreign investments are typically greater in less developed countries, which are sometimes referred to as emerging markets. For example, political, legal and economic structures in these country may be changing rapidly, which can cause instability and greater risk of loss. These countries are also more likely to experience higher levels of inflation, deflation or currency devaluation, which could hurt their economies and securities markets. For these and other reasons, investments in emerging markets are often considered speculative. Similarly, investors are also subject to foreign securities risks including, but not limited to, the fact that foreign investments may be subject to different and in some circumstances less stringent regulatory and disclosure standards than U.S. investments.