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

How to cut your energy bill this winter
Personal finance

How to cut your energy bill this winter

Gas and electricity prices have risen by more than 250% so far this year. And they’re likely to go higher still Saloni Sardana looks at what can you …
24 Sep 2021
Cryptocurrency roundup: China’s crackdown intensifies
Bitcoin & crypto

Cryptocurrency roundup: China’s crackdown intensifies

Most major cryptocurrencies suffered falls this week as China cracked down even harder, while the Evergrande crisis rattled global markets, including …
24 Sep 2021
China Evergrande just missed a bond payment. Does it matter?
China stockmarkets

China Evergrande just missed a bond payment. Does it matter?

Troubled Chinese property giant Evergrande has just missed making an interest payment to some of its bondholders. That's not a surprise, says John Ste…
24 Sep 2021
Rob Arnott: Covid's hidden investment opportunities
Investment strategy

Rob Arnott: Covid's hidden investment opportunities

Merryn talks to Rob Arnott of Research Affiliates about some of the unexpected consequences of Covid and their opportunities for investors, plus the "…
24 Sep 2021

Most Popular

Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021