Latin American bank indexes tracked by S&P Global Market Intelligence were in a rut for the last quarter of 2021 as volatile global economic conditions hurt stock performance. However, the Mexican index bucked the trend in the last few days of the year.
Total returns for the S&P Latin America Bank index remained largely in the negative terrain during the fourth quarter, finishing the period at negative 8.3% and even hitting a low of negative 11% at the tail-end of December. The index started October by posting slight positive returns as expectations for a commodity recovery with the easing of the pandemic supported equities. However, continued concerns about inflation and the spread of the omicron coronavirus variant, accompanied by fears of new lockdowns, sent emerging market stocks nosediving.
The S&P Brazil Bank index had the worst performance among the three indexes, ending the quarter with a total return of negative 13%, despite the blockbuster IPO of Nu Holdings Ltd.
The Bovespa index had rallied in mid-October, climbing to a high of 3.9%. It was downhill from there as interest rate hikes, weak economic data, fiscal concerns and political tensions amid an upcoming presidential election took a toll. As a result, the Ibovespa ended the year with the world's worst stock performance.
Major banks like Itaú Unibanco Holding SA and Banco BTG Pactual SA took a hit in October as the central bank took notice of rising loan defaults, especially in the mortgage segment.
On the other hand, Bloomberg News reported that the slump in São Paulo's equities market could be nearing its bottom with bargain hunters flocking into the country to take advantage of near-low valuations. Still, a confluence of economic and political issues continue to litter the Brazilian space.
The S&P Mexico Bank index was tracking the other indices lower for the early parts of the quarter, haunted by its reputation as a "nonexistent" IPO market with waning interest from investors. However, the index rebounded at the end of December and finished with a total return of 3.3%.
The rise was driven by better-than-expected U.S. economic growth and supported by conservative fiscal policies implemented by President Andrés Manuel López Obrador. Mexican inflation data for the first half of December also showed better-than-expected results, although a central bank board member noted that there may be price pressures ahead given raised core inflation numbers.
Analysts view Mexican financial institutions such as Grupo Financiero Banorte SAB de CV and Grupo Financiero Inbursa SAB de CV as attractive bets for 2022 as bank margins and bottom lines gain traction amid expected interest rate hikes. Growth in deposits with economic recovery should also provide cheap funding for banks.