Latin America ETFs Breeze Past S&P 500 YTD: Here's Why

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The year 2022 as a whole could easily be attributed to the Russia-Ukraine war, red-hot inflation and rising-rate worries after an upbeat 2021. No wonder, such worries caused an upheaval in the market in the first quarter of 2022 (read: Top ETF Stories of Q1 Worth a Watch in Q2).

Wall Street witnessed its worst performance in Q1 in two years. The Dow Jones and the S&P 500 lost 4.6% and 4.9%, respectively, while the Nasdaq Composite Index shed 9% in the first quarter (read: U.S. Stocks Log Worst Q1 in 2 Years: Top-Ranked ETFs Shine).

If this was not enough, heightened rising rate worries amid super-hawkish cues from the Fed have bummed out Wall Street to start the second quarter. Overall, the S&P 500 is down 5.8% this year (as of Apr 8, 2022). The Nasdaq Composite is off 12.4% this year. The Dow Jones has lost 4.5% in the year-to-date frame while the Russell 2000 has skidded 11.2%.

Latin America ETFs Win

In stark contrast to the U.S. market, Latin American stocks have registered a sharp rally this year. The super-cycle of commodity and the spike in metal prices amid the war in East Europe have made another commodity-rich area, i.e., Latin America (especially countries like Chile and Peru) a winner. Notably, Ukraine is a major producer of uranium, titanium, iron ore, steel, and ammonia too. And the country’s steel makes up around 10% of Europe’s imports.

Secondly, Russia’s exclusion (in response to President Vladimir Putin’s invasion of Ukraine) from the MSCI emerging market index favored Brazil the most, per Bloomberg. Brazilian stocks made up for 5.93% of the benchmark as April started, up a 1.3 percentage-point from the end of January, according to MSCI Inc. data, as quoted on Bloomberg.

Foreigners invested 65.3 billion reais ($13.7 billion) into Brazil’s stock market in the first three months of the year, the maximum in any quarter since at least 2008, according to B3 local exchange data compiled by Bloomberg.

Cheaper valuation and a commodity rally are the other tailwinds for the Brazil ETFs. Brazilian equities were forecast to receive $1.3 billion in inflows as investors shuffled money after the Russia issue, according to estimates by Itau BBA, quoted on Bloomberg. Overall, be it oil, soft commodities or minerals, Latin America has a rich resource base and is thus well-positioned to continue the rally.

Brazil iShares MSCI ETF EWZ – Up 34.9% YTD; Yields 7.32% annually

Latin America 40 iShares ETF ILF – Up 27.3%; Yields 6.65%

Colombia iShares MSCI ETF ICOL – Up 24.7%; Yields 0.87%

Global X MSCI Colombia ETF GXG – Up 23.7%; Yields 1.88%

Chile iShares MSCI ETF ECH – Up 23%; Yields 4.47%

Peru All iShares MSCI ETF EPU – Up 22.9%; Yields 2.54%

Brazil Small-Cap iShares MSCI ETF EWZS – Up 21.3%; Yields 3.51%

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iShares MSCI Brazil ETF (EWZ): ETF Research Reports
Global X MSCI Colombia ETF (GXG): ETF Research Reports
iShares MSCI Chile ETF (ECH): ETF Research Reports
iShares MSCI Peru ETF (EPU): ETF Research Reports
iShares MSCI Brazil SmallCap ETF (EWZS): ETF Research Reports
iShares MSCI Colombia ETF (ICOL): ETF Research Reports
iShares Latin America 40 ETF (ILF): ETF Research Reports
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