Latin America: 2013 Review

Brazil and its emerging market neighbours were hit hard by the threat of tapering - their stock markets fell when the Fed announced plans to reduce quantitative easing

Newton Investment Management 24 December, 2013 | 12:42AM

This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Tom Smith, Neptune Latin America Fund manager reviews 2012 and gives his outlook for Latin America.

2013 Review

Brazil: 2013 saw emerging markets buffeted by news from the Federal Reserve regarding the potential tapering of quantitative easing (QE). This caused weakness in equity markets and currencies through the summer, a strong rebound following the delay of tapering in September, before final weakness into year-end as US economic and employment data proved stronger-than-expected and worries over tapering re-emerged. Domestically we saw a shift to more orthodox monetary policy as interest rates rose steadily throughout the year in order to reduce inflation, which remains above target. Economic growth continued to rebound from the 2012 lows and we saw more auctions for airport and toll road concessions, helping to stimulate private investment.

Mexico: proved resilient within Latin America and the wider emerging markets as both its debt levels and current account deficit are lower, reducing vulnerability to external shocks. We continued to see impressive progress on the reform front with education, telecommunication, financial, fiscal, and electoral reform all approved and the energy reform expected to be approved in December. While not all reforms are positive for all sectors – telecommunication reform looks to increase competition and fiscal reform includes additional taxes on soft drinks and junk food – the complete reform package should lift Mexico’s potential GDP growth rates. Mexico’s economy will post growth of just 1.2-1.4% in 2013 as public spending has been weak and fiscal drag in the US was centred on the first half of 2013. However, we have seen acceleration in the fourth quarter as US manufacturing goes from strength to strength and public investment in Mexico has picked up, and we expect a much stronger performance in 2014. Having been the top performing regional market in 2012 for the first time in over a decade, Mexico looks set to repeat this feat in 2013.

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About Author

Newton Investment Management

Newton Investment Management  is a London-based, global investment management subsidiary of The Bank of New York Mellon Corporation. Newton provides award-winning investment products and services to a broad spectrum of clients.

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