Global perceptions and interest-rate differentials

Foreign investment in Latin America has been strong in the wake of recent economic reforms. Also, high interest rate yields in some Latin countries have attracted the “hot money” crowd, while lower yields prevail in most of the industrialized world.

“At this point in time, I would characterize the investment community’s [prevailing] view of the Latin American region as quite positive,” says Bernal.

Economy.com’s Coutino agrees.

“Financial markets are still attracted to the region as a whole — especially Brazil, Mexico, and Chile because of the implementation of economic reforms over the last 10 years,” Coutino says.

Guillermo Estebanez, currency strategist at Bank of America sees a “degree of resilience among investor’s attitudes” toward Latin America. “They don’t see it as vulnerable anymore,” he says. “They see it now as a permanent item on the menu.”

Coutino points to Chile as one of the most promising emerging markets in Latin America because of its tradition of supporting an open economy and willingness to implement political reforms.

“If you are a risk-averse investor, go to Chile,” he says. “They don’t have political instability and the Chilean economy has been growing like crazy in the past year because of higher copper prices.”

However, the Latin American region does face competition from Asian economies for investment dollars. “Asian countries are more attractive to foreign investors right now because Asian economies are promising faster reforms,” Coutino says.

Despite the economic reforms and the solid growth numbers, Latin America is still high-risk Bernal says, something reflected in the roughly 3.70-point spread between Latin American bonds over U.S. bonds. Nonetheless, that spread has fallen sharply from approximately 7 points during the 2000-2001 period.