Looking for a bull market? Go south!


As the old saying goes, there is always a bull market somewhere. Right now it’s not east, west or north, but south.

Among the best performing exchange-traded funds of 2022 are those linked to Southern Hemisphere equities, funds like the iShares MSCI Brazil (EWZ) ETF, which has gained 17.25% so far this year, as well as than the iShares MSCI Chile ETF. (ECH), which gained 10.40%, and the iShares Latin America 40 ETF (ILF), which gained 12.55%. Brazil particularly stood out.

Leveraged ETFs linked to the region produced similarly strong bullish results.

The Direxion Daily MSCI Brazil Bull 2X Shares (BRZU), which aims to double the daily performance of Brazilian stocks held in the index, has jumped 22.64% this year.

Latin America encompasses Central and South American countries, including Brazil, Argentina, Chile, Colombia and Mexico, and equity funds in the region have easily outperformed their peers in emerging markets in Africa, Asia and Europe. The Vanguard FTSE Pacific ETF (VPL), for example, has fallen about 24% this year, while the VanEck Africa Index ETF (AFK) has fallen about the same. The iShares MSCI Poland ETF (EPOL) was the worst performer, losing almost 50%.

The iShares Latin America 40 ETF holds a diversified basket of stocks from Central and South American countries. The fund is heavily concentrated in Brazil (64.77%) and Mexico (22.38%). Despite the fund’s modest 1.6% decline in Mexican stocks this year, the strong performance of Brazilian stocks was responsible for most of the fund’s rise.

Other countries such as Chile, Colombia and Peru account for the remaining approximately 13% of the fund’s equity exposure. The iShares Latin America 40 charges 0.47% per annum and has $1.06 billion in assets under management.

Stock market gains in Latin America were driven by record-high global commodity prices. The region is a leading exporter of commodities, especially oil and base metals, and has benefited from rising prices, especially of energy commodities, whose levels have remained stubbornly high.

Politically, Brazil is in the midst of a stormy presidential election pitting a former president with left tendencies, Luiz Inácio Lula da Silva, against the current president, Jair Bolsonaro, a former army captain. Most public polls show da Silva with a narrow lead. But so far, the close presidential race has not dampened stock prices.

The country’s stock market reacted positively to the aggressive interest rate hikes pursued by Brazil’s central bank, a monetary strategy intended to fight inflation. Rate hikes began last year and took the SELIC rate from a low of 2% in March 2021 to an impressive 13.75% last month. (The SELIC rate refers to the country’s special settlement and custody system and is equivalent to the US federal funds rate.)

Unlike Brazil’s central bank, the US Federal Reserve has been slow to raise interest rates to fight inflation. Brazil started the process last year, while US rate hikes only materialized this year.


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