AUS
NZ
UK
CA
USA
IND
Highlights:
JPMorgan upgrades Mexican equities to "overweight" from "neutral" due to strong U.S. growth and a favorable exchange rate.
Brazilian equities downgraded to "neutral" amid slower growth in China and potential tariff impacts from President-elect Trump’s policies.
The outlook for monetary policy in both countries is a key factor influencing the equity market performance.
JPMorgan (NYSE:JPM) has raised its outlook on Mexican equities to "overweight" from "neutral," citing strong economic growth in the U.S. and a favorable exchange rate that boosts Mexican consumers. The growth in the U.S. economy has been particularly beneficial for Mexico, with remittances from Mexican workers in the U.S. supporting consumer spending. Additionally, a weaker Mexican peso (MXN) increases the purchasing power of these remittances, further benefiting Mexican consumers. According to JPMorgan strategist Emy Shayo Cherman, there is a strong correlation between U.S. and Mexican industrial production, which provides additional support to the Mexican economy.
Conversely, JPMorgan downgraded Brazilian equities to "neutral" from "overweight" due to several factors, primarily weaker growth in China, which impacts commodity prices. As Brazil is a major exporter of soy, a slowdown in China—one of its largest trading partners—could lead to lower commodity prices, affecting Brazil’s economy. The potential for tariffs under President-elect Donald Trump’s administration also weighs on Brazil's outlook, as Trump has suggested imposing tariffs on imports from China and other countries, which could have a ripple effect on the Latin American economy.
Monetary policy in both Mexico and Brazil is also influencing the market outlook. Brazil is anticipated to continue increasing interest rates through 2025, which could hinder corporate earnings growth. On the other hand, Mexico's central bank is expected to ease its monetary policy into the next year, which could further support the economy.
Latin American equity markets have faced significant challenges in 2024. In dollar terms, Brazil’s MSCI index has dropped substantially, while Mexico has also seen a decline. These performances contrast with the overall positive performance of the MSCI emerging market index, which has shown growth. JPMorgan has expressed cautious optimism about Mexico’s prospects, especially as the country continues to undergo institutional reforms.
