Big asset managers are flocking to Latin American bonds and currencies, drawn by higher interest rates, lower inflation, and more resilient economies, according to “Financial Times”.
Latin America is home to five of the world’s eight biggest performing currencies this year, which benefited from the region’s central banks acting early and decisively by raising interest rates and keeping them high even as inflation eased.
Central banks in Latin America took the fastest and most decisive action in the world when inflationary pressures rose in the wake of the coronavirus pandemic, helping to suppress price growth much faster than in other regions.
But high rates did not stifle economic growth, according to “Financial Times”.
Brazil and Mexico, the two largest economies in Latin America by GDP, both outperformed growth forecasts in the first quarter of this year, prompting economists to raise their forecasts for the end of the year.
In Brazil, annual inflation is now less than 4 percent, down from more than 13 percent this time last year, while interest rates have remained high at 13.75 percent since August 2022.
In Mexico, interest rates have been stable at 11.25 percent since March, with headline inflation falling to 6 percent in May.
Central banks have also maintained their independence, ignoring calls by Brazil’s lula and in Mexico’s López Obrador to cut interest rates.
Mexico enjoys some attractive long-term structural advantages as the main beneficiary of US corporate friendship out of China into cheaper and closer labor markets and a boom in remittances fueled by a narrow US labor market.
It also has one of the most stable finances in the region, bolstered by fiscal restraint in response to the pandemic, but is one of the most sensitive emerging markets to any slowdown in the US economy.
