Julius Baer has issued a note to clients and the market warning of headwinds for Latin American markets. The Swiss bank maintains its positive thesis for these markets, but it warns that persistent inflationary pressures or negative growth surprises could pose a risk to this view.
"Growth expectations for Latin American countries are diverging, despite supportive monetary policy, while some emerging inflationary pressures could lead central banks to slow or halt their easing cycles," warn Eirini Tsekeridou and Nenad Dinic.
Even so, Julius Baer's view is that inflation will continue to fall and that eventual cuts in US interest rates will be a tailwind for the region.
Despite adjustments to growth and inflation projections in countries such as Brazil, Mexico and Uruguay, Julius Baer believes that the overall picture for Latin America remains intact - at least for now.
Julius Baer expects the region to return to its pre-pandemic growth average of around 1.5% this year.
As a result, Julius Baer reiterates its Overweight rating (equivalent to buy) for Latin American equities, "as the solid economic backdrop in the region, coupled with the external tailwind provided by lower expected US interest rates from June onwards, should lead to increased foreign investor equity inflows, upward earnings revisions and higher returns."