Latin America is one of the most interesting regions in the world. Despite its high level of political uncertainty, there are many reasons to be positive about its future. For those interested in investing in the stock markets of Latin America, below, we analyze its 5 most important stock market indexes.
- MSCI EM Latin America
- FTSE Latin America
- S&P Latin America 40
- S&P Latin America BMI
- S&P Latin America Dividend Opportunities
Latin America is a region that has many positive things going for it when it comes to looking for places to invest capital. And this is especially true because of the geopolitical events that have taken place over the past decade.
Approximately 650 million people live in Latin America, from Mexico’s northern border with the United States, all the way to Chile’s southernmost point. That is a population larger than that of Europe and about twice that of the United States. And with a younger demographic profile.
The economy of the region is highly exposed to the production of raw materials and energy. Most of its countries have abundant reserves of natural resources.
Some examples to highlight are the production of silver in Mexico, oil, natural gas and various types of mineral resources in Brazil, copper and gold in Chile, and lastly, first-class food production in Argentina.
Thanks to this, Latin America is a region that can benefit significantly in periods of elevated inflation in the world, and scarcity of natural resources. For example, the energy transition taking place in most countries will require huge amounts of metals. Regions such as Latin America will be able to serve that demand.
In addition to all of that, although Latin America has always been strongly influenced by the United States, it is a fairly neutral region when it comes to geopolitics. The partial disconnection of some emerging economies from the West, such as Russia and China, can increase the West´s dependence on places like Latin America, both to produce raw materials and manufactured goods.
For all these reasons, we can be optimistic about the future of the region. For those who want to invest passively in Latin America, we will analyze its most important stock market indexes.
The most important stock market in the region is Brazil, followed by Mexico. Both countries together account for more than 80% of the market value of all listed companies in the region.
Something to note is that Latin American stock indexes no longer include Argentina. This is because the country has ceased to be considered an emerging country and is now classified as a developing country. This is partly due to heightened currency instability, and is something that could change in the future.
For now, however, the other countries that we can find in the Latin American stock indexes are Chile, Colombia and Peru. The stock markets of the rest of Latin American countries are considered too small. Hence, investing there would have to be done separately.
MSCI EM Latin America
The first index we will look at is the MSCI EM Latin America, calculated by the American company MSCI. Within it we can find all Latin American companies that are part of the global stock index for emerging countries MSCI Emerging Markets.
As a result of that, the number of stocks fluctuates over time. About 100 companies are part of the MSCI EM Latin America.
These companies are weighted based on their free-float-adjusted market capitalization, with the largest tending to dominate within the index. As a result, it is the most important Brazilian and Mexican corporations that have the greatest weight.
Approximately 90% of the index’s market capitalization is concentrated in Brazil and Mexico. And about a third of it is in the raw materials and energy sectors. Which makes it a strong bet on the performance of commodities markets.
If you want to find out more about the MSCI EM Latin America, you can visit the following link to the MSCI website.
FTSE Latin America
FTSE Russell calculates a stock index for Latin America called FSTE Latin America. It was introduced in the year 2000 and is composed of all Latin American companies that are part of the FTSE Global Equity index.
The number of constituents fluctuates over time, but is higher than in the MSCI EM Latin America. About 150 stocks are part of this index. Just as before, Brazil and Mexico are by far the two most important countries.
Some of the most important corporations within the FTSE Latin America are Brazil’s Vale and Petrobras, and Mexico’s Grupo Banorte and Wal-Mart.
Here is the link to the FTSE Russell website, from where you can download more details about this index.
S&P Latin America 40
The S&P Latin America 40 is a stock market index calculated and published by S&P Dow Jones, the company that calculates the famous S&P 500.
This index is composed of the 40 largest listed companies from among 5 different countries: Brazil, Chile, Colombia, Mexico and Peru.
Because weighting is based on free float-adjusted market capitalization, the same companies that dominate in the other two indices are also the most important here. These represent approximately 70% of the market capitalization of the whole of Latin America.
This index can be an interesting option for passive investors, since most of its stocks enjoy high levels of liquidity.
Here is the link to the S&P website so you can find additional details.
S&P Latin America BMI
Another index calculated by S&P is the S&P Latin America BMI. Its logic is similar to that of the FTSE Latin America which we have analyzed previously.
The S&P Latin America is composed of all Latin American companies that are part of the S&P Global BMI index. Although the number of constituents is not fixed and changes over time, we can be certain it includes a greater number of companies than any of the other indices. More than 300 stocks are part of this index.
This is because of its looser criteria regarding size and liquidity in order for a company to be eligible for the index. As a result, it allows us to invest in many small-cap stocks.
The S&P Latin America BMI is the most inclusive stock index for Latin America. But we must remember that it does not include many countries in the region, including Argentina, so we would have to look for other ways to invest in those countries.
You can visit the website of S&P Global for more information.
S&P Latin America Dividend Opportunities
Finally, we also have an index whose focus is to invest in Latin American companies that pay high and stable dividends. This is the ideal option for those who want to receive passive income on a regular basis.
The S&P Latin America Dividend Opportunities is composed of 45 stocks from the S&P Latin America BMI index that meet certain criteria regarding dividend payments and profitability.
These 45 companies are not weighted according to their size, but based on their dividend yield. It should be noted, though, that all these companies must meet certain size and liquidity thresholds.
In addition to that, caps are applied to the weighting of companies, countries and sectors. No single company can represent more than 7.5% of the total value of the index. Similarly, the maximum percentages allowed for countries and sectors are 35% and 30%, respectively.
If you want to read more details about the S&P Latin America BMI, check out this link to the S&P website.
I hope you found this post about stock market indices for Africa useful. If you want to learn about the most important stock indices in Europe, check out this link:
Top 8 Stock Market Indices in Europe
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