Wealth Outlook 2024 - Slow then grow

121 Wealth Outlook 2024 | Regional outlook Latin America: potential opportunities amidst low valuations Considerations • Investor may consider locking in fixed income yields with selective USD- denominated debt. • Domestic and foreign investors might still benefit from high (and falling) local rates. • Equities are trading at attractive multiples, though it would depend on a pickup in global risk appetites to outperform. In general, Latin America's economic and market performance in 2023 was better than expected. Economic growth surprised to the upside. Equity markets more-or-less performed in line with global equities. Foreign currency debt performed in line with other fixed income markets while domestic currency bonds unhedged were a top performer among global fixed income. Latin American equities in 2023 sawa very high degree of correlation (0.77 R²) to global equities. As of November 23, 2023, the LATAMMSCI Index was up 15.59%, compared to 14.21% gains for the MSCI World Index. In fixed income markets, local rate positions performed well as central banks began cutting rates from elevated levels. The Bloomberg Latin America Local Currency bond index, unhedged, was up 22.80% as of November 23, 2023. Foreign exchange (FX)-hedged exposure gained 5.43%, reflecting the positive-if- wildly diverging currency effects in the region. The Brazilian real and Mexican and Colombian pesos appreciated 7.81%, 13.93% and 20.26%, respectively, while the Peruvian Sol was flat, and the Chilean peso lost 2.27%. In the foreign currency debt markets, performance was more muted, impacted by the rise in US interest rates. The Bloomberg Latin America bond index was up 4.76%, in line with other emerging regions’ foreign-denominated fixed income markets. 2024 performance possibilities On the surface, 2024 looks to be a repeat of 2023. Regional “real” (i.e., inflation-adjusted) gross domestic product (GDP) is set to grow a tick faster than 2023’s (1.8%) pace. The composition of that growth, however, could vary widely. The region’s two biggest economies, Brazil and Mexico, appear headed for sharp slowdowns, especially during the first half of the year. Headwinds there include slowing/ slowly recovering conditions in the US and China – each market’s respective biggest trade partner (see FIG URE 1 ). Chile and Peru, on the other hand, could see strong secular demand for key industrial metals. We expect Colombia to continue to muddle through under a cloud of policy uncertainty. In 2024, we expect monetary policy to continue to loosen gradually across much of the region. While inflation measures have been receding for months, risks of relapse remain. As some of the region’s economies slow, fiscal policies and accounts will again become a focus. An electoral cycle in Mexico is likely to loosen fiscal purse strings, as previewed in the incumbent party’s 2024 budget. For the most part, the policy impacts of the results of the elections of the last few years have been a pleasant surprise for investors, with incoming governments rarely rising to the extreme levels originally publicized during the campaigns. However, history suggests not to be complacent.