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TARIFF WORRIES WHERE? NOT AMONG LATIN AMERICAN STOCKS

Tariff threats targeting Latin American economies captured global attention since the beginning of the week, and while investors await clarity on U.S. President Donald Trump's trade policy, regional equities have been making strong advances.

MSCI's index tracking stocks in the region .MILA00000PUS is on track for a monthly gain of 10.9% - its biggest one-month jump since November 2023.

Colombia made headlines after the oil producer neared the brink of a trade war with the world's biggest economy, with exports about 3.8% of its gross domestic product depending on exports to the U.S., according to brokerage Morgan Stanley.

As threats of an impending trade war dissipates, the country's benchmark equities index .COLCAP is poised for its biggest weekly jump since mid 2020, with local oil company Eco Petrol ECO.CN witnessing its biggest monthly jump since June 2021.

Similarly, Brazil's Bovespa .BVSP is on track for its biggest one-month advance since August, with the latest tailwind being remarks from President Luiz Inacio Lula da Silva, where he appeared to show support to the local central bank's hawkish stance on monetary policy.

Mexican stocks .MXX are set for their biggest one-month rise since December 2023, while Argentina's Merval index .MERV is near record highs, on improving economic fundamentals, aided by President Javier Milei's 'chain saw' approach to fiscal policy.

"What they all have in common is the low equity ownership and valuations, which would be triggers for foreign investors. This is about as low of an equity ownership that I've seen," said Thea Jamison, managing director of CHANGE Global Investment.

On low valuations, Jamison compared the market capitalization of the local stock market to gross domestic product $(GDP)$, popularly called the Warren Buffet indicator. A value over 100% is considered well owned and a number under 100% is considered to be out of favor.

According to this indicator, the Colcap is valued at about 36% of GDP, while Mexican stocks and the Bovespa are valued at 12.2% and 68% of their respective economies. Comparatively, the United States' benchmark S&P 500 .SPX is valued at over 200% of the local economy.

Much of the drop in valuations were due to markets pricing in Trump's tariff policies, while domestic fiscal issues in Brazil, Mexico and Colombia also made investors risk averse toward the end of 2024.

Investors are now on edge ahead of Trump's tariff policies that are expected to be unveiled on Saturday.

(Johann M Cherian)

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