Buy These 6 Latin America Stocks For Strong Gains In 2018

Even as U.S. equity markets endured a correction this month, a curious incident was underway. Stocks from Latin America began to turn in an impressive performance exactly around this time. This is a notable improvement from last year’s performance, when the iShares S&P Latin America 40 Index gained only 23.6%, coming in behind the iShares MSCI Emerging Markets Index (NYSE:EEM), which returned 30.4% over the same period.

In contrast, Latin America stocks are up 14.4% this year versus 6.5% for their global counterparts. A large portion of the selloff’s global shock was absorbed by Chinese equities and it’s been relatively smooth sailing for their Latin American counterparts.

Analysts increasingly believe that stocks from the region have it in them to continue to outperform their Chinese counterparts. Prospects of economic growth also remain largely strong across Latin America, which makes stocks from the region intelligent additions to your portfolios.

Brazil’s Economy on the Rebound

According to data released earlier this month, economic activity for Brazil increased at a faster than expected pace in December. The country’s central bank’s economic activity index increased by 1.4% from the pace recorded in November, exceeding economists’ estimates which hovered around 1.1%. This was also the first annual increase recorded in four years.

This improvement comes after the economy suffered a two-year long recession between 2015 and 2016. Ultimately, the economy staged a recovery last year, expanding at an annual pace of 1%.

Analysts believe that his has been possible due to a series of capable economic ministers who have worked unceasingly, ignoring the political turmoil in the country. A crucial presidential election is scheduled for October, but with left leaning candidate Lula Inácio da Silva more or less out of the reckoning due to legal troubles, Brazil may actually be in for a period of relative political calm.

Argentina, Mexico Remain Strong Prospects

At first glance, Mexico’s prospects look clouded with its economy expanding at a slower than expected pace in the fourth quarter. Despite such a turn of events, the country still expanded at an annual pace of 2% in 2017, exceeding several other troubled economies across the region.

Additionally, populist candidate Andrés Manuel López Obrador is tipped to win upcoming presidential elections and Trump has threatened to withdraw from the North American Free Trade Agreement (NAFTA). But analysts feel markets have already accounted for Obrador’s victory and that it may be difficult to revoke NAFTA for practical reasons.

So, overall Mexico’s prospects continue to remain strong. Meanwhile, Guido Sandleris, a key advisor to Argentina’s Treasury Ministry revealed earlier this month that the country’s economy has expanded by nearly 2.8%.

This represents a clear recovery for Argentina after its economy contracted by 2.2% in 2016. Sandleris also projected that the economy would expand at a faster clip in 2018, by nearly 3.5%.

Our Choices

Latin America stocks have turned in a strong performance this year, especially since U.S. markets endured a correction. Overall, their economic prospects remain strong even as markets have largely priced in associated political risks.

Adding stocks from Latin America to your portfolios looks like a smart option at this point. However, picking winning stocks may be difficult.

This is where our Zacks Investment Research

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Written By: Zacks Investment Research