2012: Rough For Latin American Stock Exchanges

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In 2011 Latin American stock exchanges fared worse than the S&P and the Dow Jones Industrial Average. Most analysts agree that 2012 will be a volatile year.
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Last year was a turbulent one for stocks around the world. First, an earthquake in Japan led to anxiety and economic losses. Then, the Standard & Poor’s downgraded the U.S. credit rating. Next, Congress deadlocked over a debt ceiling discussion in Washington. And finally, the debt crisis intensified in the euro zone.

Yet the S&P 500, the main index of broad market performance, closed the year flat (technically, it fell 0,003 percent). The Dow Jones Industrial Average, one of the most closely watched benchmark indices, meanwhile, gained 5.5 percent in 2011.

In Latin America, though, most stock markets didn’t fare as well as Wall Street. While the region’s major economies continued to grow last year, their main stock indexes slid in 2011. Brazil’s Ibovespa declined 18 percent, while Mexico’s IPC fell almost 4 percent.

Investors in other Latin American countries also avoided stocks, which are considered risky assets. As the Colombian economy grew by 6 percent last year, its Colcap stock index ended 14 percent down. Argentina, Chile, and Peru’s stocks also finished the year lower.

Looking ahead, Latin America’s economy is forecasted to expand only by 3.7 percent in 2012, down from over 4 percent last year, according to the United Nations Economic Commission for Latin America and the Caribbean. Only Brazil - where a boost in investment is expected ahead of its hosting of the 2014 World Cup and the 2016 Olympics - is estimated to grow faster in 2012 than it did last year.

Also, the European crisis might begin to take a toll on Latin America, whose economies (and stocks) rely heavily on exports of commodities. Most economists think that the euro zone is heading into recession, which would put pressure on Latin America.

Still, the region is likely to outperform the developed world in 2012. And China - with its already robust economy expected to grow at 9 percent - will remain a large market for Latin American commodities.

While corporate profits are likely to push share prices higher, Europe hasen’t solved its currency crisis, Americans have no clue who their next president will be, and uncertainty still reigns in the Middle East, where the Arab Spring lives on.

Not surprisingly, most analysts agree 2012 is set to be a volatile year.