Stocks plunge as Latin America heads for lost decade

The coronavirus pandemic could leave Latin America's per capita GDP in 2025 at the same level as it was in 2015.

Latin America is facing a “lost decade”, say Eric Martin and Patrick Gillespie on Bloomberg. Incomes in the world’s “most unequal and violent region” had already fallen in recent years thanks to lower commodity prices. Now the coronavirus leaves Latin America bracing for “the deepest recession in its modern history”. Indebted governments have few fiscal tools to soften the blow. The result is that per capita GDP in 2025 may well prove to be the same as it was in 2015, says Alejandro Werner of the International Monetary Fund. Fragile democracies are being pushed “closer to their breaking points”. 

The MSCI EM Latin America index fell an astonishing 45% in the first quarter, despite the fact that the coronavirus has so far hit other parts of the world far harder. The region’s dependence on commodities and global trade has prompted investors to mark down stocks dramatically. Many local currencies have slumped, with the Mexican, Colombian and Chilean pesos and the Brazilian real all close to or surpassing all-time lows against the US dollar. Unsurprisingly, Argentina is among the hardest hit. A lockdown looks set to push the economy into an even deeper recession, says Nikhil Sanghani of Capital Economics. A disorderly default on the country’s bonds, which could see recovery rates fall to as low as 30% of face value, looks increasingly likely. The 2020s may prove “another crisis-stricken decade in Argentina”.

Mexico is in trouble too. With the US now the epicentre of the pandemic, cross-border trade is drying up. Local activity will plunge too. To make matters worse, says Mary Anastasia O’Grady in The Wall Street Journal, populist president Andrés Manuel López Obrador, long dismissive of the virus, has failed to serve up a meaningful fiscal stimulus.

Recommended

I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
Emerging markets: buy when the news is bad
Emerging markets

Emerging markets: buy when the news is bad

Emerging markets are being squeezed by local turmoil and by more general factors. But bad news can spell opportunity for investors.
5 Nov 2019

Most Popular

Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020