Latam Markets Under Pressure as U.S. GDP Contraction Sparks Global Risk Aversion

The U.S. economy’s 0.3% GDP contraction in Q1 2025, its worst performance since early 2022, has sent shockwaves through global markets, with Latin America (Latam) feeling the brunt of heightened risk aversion. While the decline was partly attributed to temporary factors like front-loaded imports ahead of potential tariffs, the broader implications for emerging markets—including Latam—cannot be understated. Currency depreciation, equity selloffs, and sector-specific volatility underscore the region’s precarious position in a tightening global environment.

Currency Markets: Latam FX Under Siege

The surge in U.S. imports—a 41.3% quarterly jump—subtracted over 5 percentage points from GDP, amplifying fears of a trade war and spillover effects into emerging economies. This uncertainty hit Latam currencies hard:

• Mexican Peso (USDMXN): Down 0.1%, though its economy narrowly avoided a technical recession, providing some stability.
• Brazilian Real (USDBRL): Fell 0.7%, reflecting broader concerns over inflation and policy uncertainty.
• Chilean Peso (USDCLP): Declined 1.3%, linked to falling copper prices—a critical export for Chile—as Chinese factory data weakened.

The highlights the region’s outsized exposure to external volatility.

Equity Markets: Resilience Meets Sector-Specific Struggles

Latam equities mirrored the risk-off sentiment, though some pockets of strength emerged:

• MSCI Latin America Equity Index: Down 0.7% in the period but poised for a monthly gain exceeding 5%, thanks to earlier resilience.
• Mexico’s IPC Index: Rose 0.4%, buoyed by its economy’s avoidance of recession.
• Brazil’s Bovespa: Fell 0.81%, while Chile’s IPSA dropped 0.72%, aligning with global risk aversion.

Sectoral shifts further divided performance:
- Grupo Televisa (TLEVISA): Slumped nearly 3% after a 66% drop in Q1 net profit, signaling weakness in media sectors.
- Becle (CUERVO): Surged 2.8% on a 15% profit jump, benefiting from strong global demand for premium spirits.

The underscores the divergence in corporate outcomes.

Broader Context: Trade Policy and Inflationary Pressures

Latam’s previous outperformance relative to Asian peers—due to lower exposure to U.S. tariffs—has now given way to renewed anxiety. The Federal Reserve’s hesitation to cut rates amid persistent inflation (GDP deflator at 3.1% in Q1) complicates the outlook. Meanwhile, frontier markets like Argentina face dual challenges:
- Argentina’s Merval (IMV): Dropped 1.74%, yet its parallel peso gained 2.56%, reflecting speculative trading in a macroeconomic quagmire.

Conclusion: Navigating Uncertainty with Caution

The U.S. GDP contraction has exposed Latam’s vulnerability to external shocks, particularly through trade and currency channels. While Mexico and Becle’s performance highlight pockets of resilience, the region’s broader trajectory hinges on two critical factors:
1. U.S. Trade Policy: If tariffs are delayed or scaled back, the current front-loaded import distortion could reverse, boosting Latam exports.
2. Global Inflation Dynamics: The Fed’s next move on rates will determine whether Latam can stabilize currencies and attract capital.

Data reinforces the risks:
- The iShares JPMorgan Emerging Markets Bond ETF (EMB) fell 0.6%, signaling broader emerging market underperformance.
- Chilean Peso declines tied to copper prices (down ~7% in Q1) reflect China’s slowing demand—a key Latam trade partner.

Investors should remain cautious but opportunistic. Sectors like luxury goods (e.g., Becle) and domestically oriented equities may outperform, while frontier markets like Argentina demand a speculative approach. The path forward for Latam hinges on whether the U.S. can stabilize its growth narrative—or if the region becomes collateral damage in a prolonged trade war.