Equity Markets Face Challenging Months

LatAm equity has outperformed other EM in the past month and quarter, but the next two quarters may be more challenging. “The short term outlook is more uncertain for LatAm equities,” says Geoff Dennis, head of equity strategy at Citi, referring to a 3-4 month timeframe. “If the global market continues to be weak, LatAm stands a chance of underperforming because it’s done so well until now,” adds the strategist. Bearish and volatile trading would keep the roughly 20 equity issuer hopefuls – mostly from Brazil – stuck in the pipeline. In the longer run, however, Citi maintains a bullish call on the region. It is constructive on EM and global equities if the US economy manages to turn around in the second half. The outlook for a continued up trend in commodities is still very positive, says Dennis. He notes that despite strong improvements in the region’s fundamentals, LatAm strength is largely supported by firm commodities, with oil, iron ore, copper, gold and pulp among the chief benefactors. LatAm stocks outperformed global EM in March for a seventh consecutive month, according to Citi, which points out the last time that happened was 1997. Brazil’s main equity index, the Bovespa, underperformed LatAm in March, falling 7.8% on the heels of an 11.9% surge in February. Peru dropped 5.1%, while Chile was the region’s strongest riser, gaining 7.7%, says Citi. Argentina and Mexico also had a positive March, rising 5.8% and 5.7% respectively.