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Is a Reversal of Fortune Imminent in Latin America?

If Mexico has maxed, could Brazil be beckoning?

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Last October 19, the Brazilian government imposed taxes on foreign purchases of the country's stocks and bonds. The government levied the taxes to slow down the colossal run on the Brazilian real, which had appreciated by more than 26% during the 10 months prior. At that time, we recommended looking at Mexico, rather than Brazil, for Latin American investment prospects. While that call has worked out well, the real question is, what's the best move going forward?

Before the imposition of the foreign investment tax, Brazil was massively outperforming Mexico, and for good reason. After all, Mexico was in the midst of a severe economic contraction, industrial production and consumer confidence were at multiyear lows, unemployment was at multiyear highs, and the currency was getting decimated. That was pretty much the opposite of what was happening at the time in Brazil, where despite the global downturn, the economy was holding steady on the back of strong commodity pricing, lower interest rates, and winning the 2016 Summer Olympic bid. But that's was just it. All the good news had been baked into to Brazil (and all the bad news was embedded into the story in Mexico), so in terms of relative upside, Mexico made a lot more sense.

Imari Love does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.