Lat Am markets suffer end-year jitters

Financial markets across Latin America have come under renewed pressure in the final weeks of this year. Part of the trigger has been renewed falls in oil prices. The currencies of two of the region’s largest oil exporters – Colombia and Mexico – have suffered the sharpest drops this month. However, in many cases, local factors have contributed to falls. In Brazil, the continued investigation into corruption at the state-owned oil company, Petrobras, has spread to other parts of the government and weighed on investor sentiment. Brazilian stocks have fallen by over 10% this month and the real has weakened by a further 3% against the dollar. Looking ahead to 2015, the outlook is likely to remain challenging. In addition to the fact that economic growth is likely to remain extremely weak, investors will also have to contend with rising interest rates in the US. Equity valuations now look reasonable, which could offer some support to stocks, but we expect most currencies in the region to weaken further next year, while foreign-currency bond yields are also likely to edge up. In short, 2015 is shaping up to be another difficult year for Latin America.