LatAm: Strong flows face real-rate risks – BNY

Geoff Yu at BNY highlights that Latin American (LatAm) equities have attracted strong inflows thanks to improved terms of trade and resilient currencies. However, higher real rates and tighter financial conditions could eventually pressure earnings, potentially triggering softer equity performance and increased currency hedging demand.

Regional stocks resilient but vulnerable

"LatAm economies are also exposed to higher energy prices, but there’s a clearer case for terms-of-trade improvement due to better supply resilience and increased demand for their own raw exports."

"This helped LatAm currencies withstand the shock from the first weeks of the conflict."

"Consequently, the region is still seeing strong inflows into equities, but we’re mindful that equities normally have an inverse relationship with real rates."

"Corporates and households will face tight financial conditions in the near term."

"If this starts to weigh on earnings, we’d expect some softness or at least a pickup in currency hedging."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)