Heightened volatility across risk assets has prompted Barings to take a more cautious view on the outlook for Latin American equities over the rest of the year, cognisant of the fact that the US and eurozone debt woes and slowing global economic growth will likely keep volatility high for a while.

That said, Barings sees very little chance of contagion affecting Latin America in the manner of the peripheral eurozone countries, especially in relation to widening bond spreads.

Barings is looking at Latin American firms with pan-regional revenue streams over exporters with exposure to the developed markets – a tack followed by many market players at the moment due to the dubious growth prospects of many Western nations.

Barings points to the positive macro fundamentals of many Latin American countries, and is particularly positive on Brazil, where the monetary tightening cycle may be nearing its end for the year as annual inflation approaches its peak; a slowdown in the Brazilian economy could have a cooling effect on inflation expectations and provide a fillip to the country’s markets in the coming months, the firm predicts. “The Brazilian real has little room to appreciate further, it added 1 per cent versus the US dollar in July, and could depreciate if the interest rate outlook changes,” adds Roberto Lampl, Barings’ head of emerging market equities.

The firm also favours Peru because the recent election has given the country political stability and the commodities-heavy Peruvian economy has been boosted by the recent highs in gold and silver prices. This has also of course been to the benefit of precious metal mining firms such as Buenaventura, one of Barings’ top stock picks; the firm has broadly upped its exposure to metals and mining and in particular to gold.

Barings' Latin America Fund is underweight financials and materials, favouring the defensive like telecoms, healthcare and consumer sectors.

“We are neutral on Mexico and have very little exposure to companies trading with the US, instead favouring a pan-regional tilt to our holdings. Though Chile has better growth and inflation numbers, we are underweight the market there and also in Colombia, which remains relatively expensive and where its central bank has raised the policy rate for the sixth consecutive month,” says Lampl.

“From a stock-specific point of view we think copper and iron ore miners such as Chile’s Antofagasta will continue to benefit from strong demand from China and India, and should outperform as a result.”