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Investment strategy
February 25, 2021
3 mins

Patience is a virtue

February 25, 2021
3 mins
Jorge Amato
Head - Latin America Investment Strategy
Beautiful sunrise view from an empty Corcovado Mountain staircase

While the global economic recovery should benefit Latin America this year, domestic problems could hold back its growth. But having suffered in 2020, the region's equity markets could outperform this year.

  • Latin America is caught between strong crosswinds. On one side, the region may benefit from tail winds from a global reflationary environment, characterized by easy monetary and fiscal policy, above trend growth and firm commodity prices. But domestic headwinds could partially counter this favorable set of global financial conditions. The COVID pandemic has not only had a severe negative economic impact, but also social with greater polarization and political fragmentation, features that the region was already dealing with before the health crisis. A number of important electoral cycles will take place in 2021 and institutional change and social pressure could come from its results.
  • Regional economies have rebounded from the 2020 lows, but full economic recovery from the COVID-19 pandemic might not be achieved until late 2022. By contrast, we expect the global economy to fully recover in 2021 and likely enter an above-trend growth cycle in the coming years.
  • 2020 was an annus horribilis for Latin America's markets and economies. While 2021 might not be precisely an annus mirabilis, we see tactical opportunities for global portfolios. Given the sharp economic contraction and financial market underperformance, we look for the region to potentially outperform in 2021, in line with our Reversion to the Mean Outlook theme. The region's highly cyclical equity market was the worst performer in 2020, and saw some of the sharpest real exchange rate depreciations. These large performance dislocations relative to the rest of the world present an opportunity in our view. We caution, however, that this is a tactical and cyclical view and subject to the high levels of volatility that characterize the region. Unlike emerging Asia, where we see long-term secular growth opportunities, we fear that absent significant structural reforms, Latin America's growth path will remain a challenging one over the coming years, limiting long-term investment opportunities. 
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