By Rodrigo Campos

NEW YORK (Reuters] – Latin America provided a welcome respite to whipsawed investors in emerging market markets during the first quarter. The accelerating inflation rate and hawkish U.S. Federal Reserve weighed heavily on assets before Russia invaded Ukraine late February.

The import or export of energy and basic metals by a country has a significant impact on its emerging market performance for this quarter. These are important inflation pressure points.

The performance of Latin American currencies has been strong across the Atlantic, far away from the conflict in Ukraine. They have outperformed on the monetary policy tightening cycle that started last year, and the exposure to key commodities. Baselines are also relatively low after the collapse of the regional economy by the COVID-19 pandemic.

Graphic: Currency performance across emerging markets – https://graphics.reuters.com/GLOBAL-EMERGING/CURRENCIES/lgvdwqjlnpo/chart.png

EM stocks are down 6.8% for this year. This is due to a significant exposure in Asia as well as a mere 15% of a weighting from material and energy. Stocks of the developed economy have experienced a 4.2% drop during January-March quarter. Latin American stocks have seen a 26% increase, thanks to a close 35% contribution from the energy and materials sectors.

Sameer Samana, senior global market strategist for Wells Fargo (NYSE: ) Investment Institute. He runs a theme commodity exporter basket, which he claimed “has been going downhill since 2012.”

It has shifted back to an upward trend for the first-time in 10 years.

According to him, the overall EM stock market index’s underperformance can be partly explained by its tilt toward China and South Korea. These aren’t your grandfather’s emerging market, and they’re less commodity-centric that they once were, with a heavy tilt toward commodity importers. said.

Graphic – Stock performance across emerging markets – https://graphics.reuters.com/GLOBAL-EMERGING/STOCKS/gdvzyjkqxpw/chart.png

Due to the destruction of trade relations, the further rise in food and energy prices caused by the invasion has had a major impact on Emerging Europe.

Capital Economics, a research company that specializes in economics and business consulting said in a note that spillovers from Emerging Europe would be devastating to the region.

Latin America is home to four of the top five EM stock market performers in dollars terms by 2022. Returns from Brazil, Chile, Peru and Colombia hover around 30%. You can add Mexico to this list and it will give you five of the top-performing currencies against the dollar for the year.

Brazil, Uruguay Chile, Chile, Peru are some of the most successful countries for local currency bonds.

Graphic: Local currency sovereign bonds, total return – https://graphics.reuters.com/GLOBAL-EMERGING/GBI/zdpxojqjwvx/chart.png

As the Fed tightens its cycle, foreign currency bond yields are rising across emerging economies. According to JPMorgan (NYSE) data, Turkey and Argentina have the lowest total return losses.

Graphic: Foreign currency sovereign bonds, total return – https://graphics.reuters.com/GLOBAL-EMERGING/EMBIGD/dwvkrqkqzpm/chart.png

Energy shock

Russia was sanctioned for attacking Ukraine. The United States is the world’s largest oil buyer, and the sanctions also ban oil imports from Canada, Britain, and other countries. The quarter’s fourth largest gain in quarterly oil prices since 1990 is 43%. This compares to the 23% that the barrel of was trading at before Russia invaded Ukraine.

It is one of the largest energy importers. However, it has stabilized below $15 per dollar since last year’s crises, and is down nearly 10% for the quarter. March saw about half of the losses. Its foreign sovereign bonds are third best among EMs.

Egypt is a large food importer and devalued their currency 14% in order to attract investors who had taken out cash following the conflict. The Egyptian pound currently ranks as the lowest performing EM currency this year.

The Russian rouble has rallied in the last two weeks but currency control could make the recovery artificial. This year it is more than 10% higher against the dollar, and Ukraine’s currency has dropped over 7%.

The dollar strengthened by 2.3% in comparison to a basket of peer currencies. This quarter’s EM currencies saw a 0.5% increase in value compared to a basket of peers. The Latin America currency index jumped 14% and reached a quarterly high.