S&P Latin America Equity Indices Commentary: Q4 2022
Despite a difficult year for most global equity markets, the S&P Latin America BMI gained 4.9% in 2022, and it was the only major regional equity market to close the year in positive territory. This marked a stark reversal from 2021, when Latin American equities were the sole region in the red, while the S&P 500® and several other regional equity markets hit record highs.
While most equity markets were hampered by rising interest rates, recession concerns and a steep decline in Information Technology and other growth-oriented stocks, Latin American equities benefited from high exposure to commodities and limited exposure to Information Technology, along with currency strength versus the U.S. dollar.
On a quarterly basis, global regions struggled throughout the year. Latin America, on the other hand, was up three of the four quarters, as shown by the performance of the S&P Latin America BMI.
A closer look at the main country indices shows that Argentina’s S&P MERVAL (ARS) posted the largest gains for Q4 (45.3%) and YTD (142.0%). However, these returns are reflective of the country’s high inflation rate. Focusing on the emerging markets in the region, Chile was the top performer in 2022, as reflected by the S&P IPSA, driven mainly by its exposure to mining, which kept it in positive territory in Q2 (while other regions posted losses in that period). Peru and Colombia, despite recent political instability with newer elected governments, ended the year losing a mere 2% each. The largest markets in the region, Brazil and Mexico, both had their ups and downs; in the end, Brazil was able to generate higher returns, driven by its mining and oil & gas companies, helping the S&P Brazil LargeMidCap Index (BRL) gain 3.5%, while Mexico’s S&P/BMV IRT (MXN) was down 5.7% for the year.
Sector analysis shows that the one-year returns were mixed. The rise in oil prices drove the Energy sector (41.2%) to outperform. Other top performers among the S&P Latin America BMI sectors were Real Estate (16.3%) and Utilities (14.5%), however Financials (8.8%) and Materials (9.1%), which are represented by the largest companies in the region, had the greatest contribution to returns after Energy.
2023 started with new visions and expectations for the region. New leadership in Brazil, Chile, Colombia and Peru will likely bring significant shifts in economic and governmental policies in 2023. The region is also preparing for what may be a difficult year, as echoes of a global recession weigh on equity market sentiment. Will Latin America continue to outperform? It will be interesting to see how the region navigates through economic, political, and public health care uncertainties.