Economic tortoise, financial hare

Other than in soccer, Latin America has (mostly) lagged behind (east) Asia in nearly all indicators, specially in terms of economic growth. But, as BCA Research recently noted, Latin American stocks have outperformed their Asian peers by a wide margin over the last 20 years. Capital Spectator looks at some explanations, but finds no clear answer.

Actually, there's a pretty simple explanation.

In the 1980's, Latin America was stuck in a huge economic and financial crisis after many nations defaulted on their foreign debt and commodity prices plunged. At the same time, the Asian Tigers were roaring along quite nicely. Hence, Latin American stocks at that time had very high risk premiums incorporated into their valuations. Those risk premiums have fallen dramatically as LA has put its finances in order during this time frame. Thus, starting from a lower base, the region's stocks have outperformed.

One could aslo add that the LA sector is dominated by a few fantastically profitable monopolies/oligopolies and that Asian markets were and are much more liquid, so that a falling liquidity premium might be helping LA stocks.