Trend conditions in Latin America turn favorable

Key points:

• Most Latin American countries show positive absolute and relative price trends
• After similar trend conditions, the MSCI EM Latin America Index rallied over the next three months

Trend conditions for countries in Latin America look more compelling 

From a global investment perspective, Europe has been the standout region, which I highlighted last month. Other areas around the globe have failed to exhibit bullish trend scores in unison until now. 

With absolute and relative trend scores improving in Brazil, the overall backdrop for Latin America looks more constructive. 

Let's assess the outlook for the MSCI EM Latin American Index when 100% of the countries in the region show a positive absolute trend score and 80% or more exhibit a positive relative trend score. 

Brazil is the only country in Latin America without a positive relative trend score versus the S&P 500. However, the score improved by six points, and Jason pointed out a new bullish development, which could help.  

To see how I calculate trend scores, please click here. 

Similar trend score conditions preceded a bullish medium-term outlook

While the signal tends to hit a rough patch in the first few weeks, the medium-term results look excellent, especially in the three-month horizon. 

The max gain relative to the max loss looks unfavorable from one to four weeks later. However, from two to twelve months later, the median max gain looks significantly better than the median max loss. 

What the research tells us...

While a few countries in Latin America have exhibited bullish trend conditions, the region has yet to have an environment whereby everything aligns in unison. However, with improvement from Brazil, the tide could be changing. The percentage of countries with positive absolute and relative trend scores increased to 100% and 80%, respectively. After similar trend conditions, the MSCI EM Latin America Index was higher 91% of the time over the next three months.