As 2021 drew to a close, rampant inflation, sovereign risk, currency volatility and political uncertainty all loomed large in the minds of investors sceptical of Latin America’s economic fortunes for the year ahead. That was at least until geopolitical developments on the other side of the globe prompted a sharp rethink.

Russia’s invasion of Ukraine has sent commodity prices soaring. This is a boon for regional crop, metals and energy exporters, benefitting Chile, Brazil, Colombia, Argentina, Mexico and Peru to varying degrees. South American markets are also discovering a newfound status as safe havens with investors pivoting from emerging markets in Europe and Asia; their attractions include rising interest rates, strengthening currencies, cheaper equity valuations and sheer physical distance from the conflict. The MSCI Latin America index is up by over 15% this year, compared to a global downturn of around 10%.

How long investor enthusiasm will last is unclear. Revenue growth underpinned by higher copper prices in Peru and Chile and agricultural commodities in Argentina may yet be offset by their dependence on energy imports, raising current account imbalances. Even safer short-term bets on major oil exporters Brazil, Colombia and Mexico are not without risks, including import disruptions for key goods such as fertiliser. The swift deceleration of growth in the US and China will have significant knock-on effects across the board.

The longer-term risks that troubled analysts last year have by no means gone away either. Entrenched fiscal imbalances persist, particularly in Argentina, and are unlikely to be patched by short-term commodity revenues. Inflation still has room to grow in line with price rises irrespective of the tightening stance of central banks across the region. Political risks abound, underlined by elections in Brazil and Colombia that appear set to produce left-wing presidents, the fractious nature of government in Peru and constitutional overhaul in Chile. Investors sheltering capital in Latin America may eventually find that they’ve jumped from the frying pan into the fire.