According to ECLAC Washington Office’s latest report Capital Flows to Latin America: Recent Developments, the external outlook for Latin American and Caribbean financial markets deteriorated significantly in the third quarter of 2011, as the euro-zone fiscal crisis and a frustratingly slow recovery in the U.S. weighed heavily on investor sentiment. Risk aversion rose significantly over the three-month period, leading to sharp volatility in the region’s currency, equity and bond markets, underscoring the vulnerability of the region to shifts in market sentiment.
Although the more recent financial troubles afflicting the world economy are centered in the euro-zone, the impact on regional equity prices has been stronger than in the advanced economies. By the end of September 2011, the Morgan Stanley Capital International (MSCI) Latin American Equity Index had lost almost 28% since the beginning of the year,
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