Emerging Markets  

What are the political prospects for the region?

This article is part of
Guide to investing in Latin America

Mr Smith believes 2019 will be a year of action for the newly elected leaders across Latin America as they execute their plans for reform and get to grips with their economic challenges. To that end, he believes Mexico’s president is a key uncertainty given his populist ideology, although his attempts to reassure businesses and the markets suggest a more pragmatic style of governing.

In Brazil, the investment climate has been tough in recent years with the recession on corporate earnings and the interventionist policies of the Dilma Rousseff government impacting business confidence and reducing visibility.

Investors like Mr Smith now anticipate the incoming government will pursue an agenda of reform that will reduce the size of the state and privatise public assets to stabilise the government debt burden and stimulate economic recovery. 

Looking ahead

To a large extent, analysts are sanguine when it comes to the outlook for Latin American politics.

Mike Ingram, chief market strategist at WH Ireland, points out: “There are country-specific issues, but aside from the final resolution of trade talks between the US, Canada and Mexico, nothing that seems likely to prompt regional contagion and overall it is politics as usual for Latin America.”

Meanwhile, Mr Wang says the region faces concerns from the US Federal Reserve raising interest rates, the US dollar strengthening, and the escalation of trade disputes between the US and its trading partners. 

However, he says: “In terms of what has historically deterred investors, it has been Latin America’s boom-bust cycles in macroeconomic policymaking in the past. In the good times countries over-spent and kept interest rates too low, which sowed the seeds for balance-of-payment and currency crises in the bad times when international liquidity conditions tightened.

“The good news is that this has largely not been the case this cycle, and most of Latin America is in good shape, with low external imbalances, robust foreign exchange reserves, moderate inflation and freely floating currencies.”

Geordie Clarke is a freelance journalist