Brazil slows Latin America

Latin American markets have outperformed those in the developed world so far this year. The MSCI Latin America index had gained 2.7% from the start of the year as of March 22nd compared with a decline of 0.6% in the MSCI World.

Fernando Luque 24 March, 2004 | 7:16PM
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But compared with other emerging markets Latin America has clearly underperformed. The MSCI Eastern Europe has increased by 19.2% while MSCI Asia has risen by 4.4%.

Latin America’s poor performance can be accounted for by Brazil’s fall of 4.8% so far this year. According to Juan Ignacio Katz, the manager of the ABN Amro Latin America Equity fund, two Brazil-specific events drove market underperformance.

First, the fact that the Brazilian central bank has kept interest rates unchanged for over two months when the economy was quite weak (GDP fell by 0.1% in 2003). On March 17th, however, the central bank decided to reduce official rates by a quarter point to 16.25%.

Second, political uncertainty.

James Gotto, the manager of the Schroder ISF Latin American

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Fernando Luque

Fernando Luque  is Senior Financial Editor at Morningstar Spain