If you just pay attention to the headlines, it looks as if Latin America has taken a turn for the worse. Data revealed last week showed that Brazil GDP contracted by 3.6 percent in 2016, prolonging its worst-ever recession, Mexico's peso has been sunk by talks of U.S.-built walls and renegotiated trade deals, and Venezuela is nearing a total collapse.
However, stock markets tell a different story. In 2016 several Latin American markets began soaring, reversing years of negative returns. The MSCI Emerging Markets Latin America was up 21 percent, the MSCI Brazil climbed by 61 percent — it was the best-performing emerging market country last year — MSCI Peru rose by 53 percent, and others experienced gains as well.
Despite continued economic challenges in some locales, the strong returns have continued into this year. The main Latin American index is up 12 percent, Brazil is up 12 percent, MSCI Argentina has soared by 29 percent, and others have seen solid gains.
While markets that perform well in one year often fall behind the next, that's not what's happening in Latin America. If anything, the region should continue to see even stronger gains ahead. "It's still very attractive," says Gerardo Zamorano, a director and analyst Brandes Investment Partners. "Especially on a relative basis, compared to the U.S."
Why might Latin America continue to outperform? For these three reasons.