(Bloomberg) -- Latin American stocks are outperforming other emerging-market regions by the most since 2009, enjoying a moment of economic and political stability in a turbulent world.

A ratio analysis of benchmark indexes for the three major regions in the developing world shows that Latin American stocks have risen to the highest level in 14 years against Emerging Europe, Middle East and Africa, and are heading for the first back-to-back annual gains against Asia in that period. 

The key drivers of this rally are the same as in 2009 — a robust US economy and expectations for an accommodative Federal Reserve. But it is also a case of comparative advantage. Asia is weighed down by a sluggish Chinese economy, while EMEA stocks are being buffeted by two wars, lingering debt distress and vulnerable currencies. Latin America, meanwhile, benefits from its distance from geopolitical tensions, proximity to the world’s largest economy and a greater ability to provide economic stimulus.

“Latin America currently appears to have an edge over EMEA as we look ahead to 2024, primarily due to its favorable macroeconomic environment and positive market reactions to anticipated policy changes,” said Nenad Dinic, an equity strategist at Bank Julius Baer & Co. in Zurich. “The EMEA equity market remains more vulnerable to geopolitical risks, given the potential for a region-wide escalation in the Israel-Hamas war.”

The MSCI EM Latin America Index, which assigns a combined 90% weight to Brazil and Mexico, is up 16% this year, the biggest advance since 2017. The largest contributions to this rally have come from Petroleo Brasileiro SA, Fomento Economico Mexicano SAB and Itau Unibanco Holding SA. Earnings estimates for the index’s members are at a one-year high and valuations are half of what they were three years ago. 

“Brazil has embarked on an aggressive rate cutting cycle, while the improved fiscal outlook has bolstered investor confidence,” Dinic said. “Meanwhile, Mexico’s economy has benefited from the nearshoring narrative,” in which US companies bring production facilities closer to their home market.

The index for EMEA stocks is down 0.5% in 2023, with South African mining stocks and Middle Eastern banks acting as the biggest drags. Johannesburg stocks are hobbled by waning demand from the nation’s key export market — China — as well as domestic problems such as lingering power cuts and high unemployment.

Many of the region’s currencies are also pegged to the US dollar, thus leaving them unable to rally when the greenback weakens. This reduces their carry appeal at a time when juicy yields in countries like Brazil beckon traders. 

“Latam markets are more sensitive to US yields versus Middle East markets where many countries have their currencies pegged to the dollar and thus carry trades aren’t a driver of currencies or equities,” said Ashish Chugh, a money manager at Loomis Sayles & Co.

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