Risk continues to pay off handsomely in the world’s equities markets. As our table below shows, reaching for more has delivered more, reinforcing the notion in 2007 that higher risk equates only to higher reward.
The top-performing region through last night’s close was Latin America, which has climbed an astonishing 41% in dollar terms (this and all data are courtesy of S&P/Citigroup Global Equity Indices). In fact, double-digit gains remain the norm for much of the planet’s stock markets, with Japan being the conspicuous exception.
This year’s rally may reflect rational pricing of assets, but the gains in Latin America are inducing some head scratching. Indeed, the region’s relative strength is conspicuous this year, but it’s hardly a new trend. BCA Research last week observed that Latin America has outperformed Asian markets for nearly 20 years. “This is remarkable, given strikingly superior economic performance in Asia relative to Latin America,” the consultancy wrote.
Some of Latin America’s equity leadership can be attributed to the fact that the region is relatively rich in commodities compared to Asia. Among the obvious examples: Chile is a major copper producer and Venezuela is among the world’s biggest exporters of crude oil. The bull market in commodities, then, solves the puzzle for why Latin American stocks are running hot for so long, right? Well, only partly. The commodities rationale isn’t completely persuasive, BCA advised, noting that Latin America also outperformed in the 1990s even though commodities prices were weak in the decade.
