Looking ahead: Watch the big picture

Despite the surge in many Latin American currencies, they are not necessarily overvalued.

“Over the past year, we’ve seen a sharp appreciation of the currencies in Brazil, Columbia, Chile and, to a lesser extent, in the Mexican peso,” says BNP Paribas’ de la Fuente. “The appreciation is partly because they were undervalued to begin with. They are at fair value now — not expensive. Brazil is still putting out superb export numbers, which tells you its currency is not overvalued yet.”

But he adds, “Latin America is like a barnacle on a cruise ship. It’s riding the wave of a much bigger global phenomenon.”

Given the potential risk for slowing global growth, currency revaluation by the Chinese (see “Related reading”), and the potential for higher rates and slower growth in the U.S., Latin America could be vulnerable to a retraction of foreign investment flows. “I’m more of the view there is a day of reckoning for emerging markets,” de la Fuente says. “Some of the strength we’ve seen will have to be reversed.”