BNY’s Geoff Yu highlights Latin America as the most resilient region across assets, with regional currencies overheld and equities attracting net inflows despite broader risk-off conditions. Within the region, Brazil is framed as a diversified, high-yield “hedge” market, while Peru is seen as a concentrated, single-commodity play tied closely to Silver and risk-on sentiment.

Brazil seen as hedge, Peru as high beta

"Latin America remains the most resilient region across all asset classes. On a holdings basis, all currencies in the region remain comfortably overheld. LatAm was also the best-performing equity region, and our data show that it was the only regional aggregate that saw material net inflows from a strongly overheld level. This is a rarity during a period of broader market risk-off, underscoring the region’s distance from current events and strong potential to benefit from repricing in global commodities."

"However, within LatAm we note that there are major differences between individual markets. For much of the conflict, Brazil was seen as the best “hedge,” realizing stronger terms of trade from food and energy exports. Furthermore, it retains one of the highest nominal rate levels in emerging markets, which provides a buffer against sales. In contrast, Peru is now almost a “single-commodity” currency and equity market, with fortunes closely tied to silver prices. Therefore, it’s no surprise that the two show diverging flow trends: while both have been comfortably bought for the year, their flow trends year to date are almost completely opposite."

"Based on the broader risk environment, it seems that when markets are keen to pursue concentrated themes in a “risk-on” manner, Peruvian equities offer strong exposure, even given the high dependency on very volatile but “real” assets. Brazil offers much greater diversification in terms of commodity exposure and rates, giving the currency a regional “safe haven” feel. Based on current flow trends, the fact that Peruvian equities are now outperforming Brazil for the first time since the conflict began points to much stronger risk preference compared to broader markets. However, this only seems possible in a region most insulated from current events."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)