Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 94 Investments Our favored markets Latin America’s largest economies could grow down inflation expectations, its success could be on average around 1% in 2023. This rate is at risk if Lula’s spending plans are undiluted. 1 lower than the 2.5-3.0% range for 2022. And EQUITY EPS GROWTH FORECAST it reflects our view that the global economy Colombia, Peru and Chile have unproven new will decelerate in 2023 as higher policy rates administrations, which face the challenge of Brazil -15% take effect. reconciling aggressive social spending promises with available resources. Chile and Colombia are In 2022, the region added two further left- the most uncertain here, as they are dealing with 1 SECTORS EPS GROWTH FORECAST leaning presidents: Gustavo Petro in Colombia proposals for more significant changes such as and Luis Ignacio Lula da Silva in Brazil. These constitutional reform and contentious pension, IT 38% two elections completed the wave of left-wing tax, labor and property rights reforms. populism across all the major economies. Telecom 84% Argentina, which often goes against the grain, Argentina will likely have another rough might break this pattern in 2023. year, with government spending and inflation Healthcare 20% accelerating as elections loom. Investors will Despite a shift in economic policy toward watch for a potential change in administration Consumer Staples 13% higher public spending among these countries, that could foster positive expectations. But the the magnitude of risks is quite different. Each macroeconomic adjustment required is massive FIXED INCOME YIELDS2 nation exhibits different political and economic and a challenge for any government. undercurrents, requiring investor discernment in Brazil investment portfolio construction. Equities grade and high yield 6% Mexico’s economy is likely to suffer the deceleration we expect in the US, its largest The MSCI Latin America Index is up nearly 4% Sources: 1 - FactSet consensus estimates, as of 23 Nov trading partner. López Obrador’s (“AMLO”) year to date, a strong performance compared 2022; 2 - Bloomberg, as of 23 Nov 2022. Past perfor- six-year term will end in 2024, suggesting to global equities, down around 18%. Excluding mance is no guarantee of future returns. Real results may vary. Indices are unmanaged. An investor cannot he will focus more on building his legacy as Colombia – down 15% albeit still outperforming invest directly in an index. All forecasts are expres- he cannot be re-elected. Reduced economic global equities – every other major regional sions of opinion, are subject to change without notice activity constrained fiscal resources and political and are not intended to be a guarantee of future equity market saw positive returns to events. uncertainty could put pressure on Mexico’s varying degrees. solid market performance since the 2020 pandemic lows. Latin American earnings per share (EPS) growth was a solid 13% in 2022. And the absolute level The fate of Brazil’s fiscal accounts will remain of expected EPS of $287 is not far from the markets’ principal focus. Lula’s campaign commodity super cycle record of 2007-2011. pledges for social spending add up to roughly Forward price/earnings multiples going into $40bn, around 2% of GDP, such resources that 2023 are practically the same as last year, are unavailable within the current spending again suggesting the potential for attractive framework. The fiscal spending debate may valuations. For the region, a 12.5% decline in dominate economic headlines throughout 2023. EPS is forecast. While the central bank has managed to bring