Tensions Rise, Latin America ETFs Slide

by on July 7, 2009 | ETFs Mentioned:

Following the midnight coup of president Manuel Zelaya last week, the political situation in Honduras has become increasingly tense, forcing both neighboring nations and global powers to choose sides in the as-of-yet relatively bloodless conflict that is threatening to destabilize the region. The situation in Honduras has sent many Latin American ETFs reeling over the last week, as fears over the continent regressing to its historically violent ways have caused anxiety among global investors.

 Zelaya was forced to leave Honduras at gunpoint last Sunday, the day voters were set to decide on a referendum that would have paved the way for Zelaya to extend his term as president. The Honduran Congress subsequently named Roberto Micheletti as the acting leader of the country. Although the announcement was initially cheered, pro-Zelaya forces have emerged and begun to coordinate their actions, most recently clashing with soldiers at the Tegucigalpa airport where Zelaya was attempting to land his plane.

Battle Lines Drawn

Despite repeated warnings from the acting government in Honduras that he will be be arrested if he returns to the country (Zelaya has been accused of various crimes, ranging from treason to drug trafficking), the ousted ruler has found support from the international community. In Washington, President Obama declared that Zelaya was still the president of Honduras, saying his ouster “was not legal.” Over the 4th of July weekend, Zelaya attempted to fly from Washington to Honduras on an aircraft on loan from the Venezuelan government (Venezuelan president Hugo Chávez is one of Zelaya’s closest allies), accompanied by U.N. General Assembly President Miguel d’Escoto Brockmann. They were followed by a second plane carrying Argentine President Christina Kirchner, Ecuadorean President Rafael Correa, and Paraguayan leader Fernando Lugo. Zelaya was ultimately unable to land in Tegucigalpa, so he continued on to Managua, Nicaragua, where he met with President Daniel Ortega, another close ally.

Cardinal Oscar Rodriguez, the highest ranking Roman Catholic Church official in Honduras, appeared on television Saturday pleading with Zelayato remain abroad, fearing that his return would lead to bloodshed. Rodriguez also sided with the provisional government, criticizing Zelaya by noting, “the day of your swearing in, you clearly quoted the three commandments of the sacred law of God: Not to lie, not to steal, and not to kill.” Although violence has been minimal (there have been reports that two people were killed at the airport in a conflict with soldiers), it appears likely that, unfortunately, more blood will be shed in Honduras. Both sides are passionate about their causes, and neither appears willing to give an inch.

Latin America ETFs Slump

U.S. equities have slumped over the last week on fears that a recovery may be further off  than originally thought, and Latin America ETFs have been no different. Although none of these funds have significant holdings in Honduras, the threat of regional instability (as well as more general fears of a prolonged recession) has weighed upon them recently.

Fund Name Ticker Return
iShares Latin America Index Fund ILF -3.2%
SPDR S&P Emerging Latin America ETF GML -2.8%
iShares MSCI Brazil Index Fund EWZ -2.7%
Global X FTSE Colombia 20 ETF GXG 4.0%
iShares MSCI All Peru Capped Index Fund EPU -3.8%

 

By comparison, SPY, which tracks the S&P 500, is down 3.1% over the same period.  

Disclosure: No positions at the time of writing.