Latin American Funds: Getting Hot Down There

Since the spring selloff, however, investors worldwide seem to have bought into Greenspan's strategy of a "measured" pace for rate hikes. And Latin American stocks have sprinted forward as the yield on the 10-year Treasury has fallen to 4.28% from its May high.

Looking Ahead

Todd Henry, emerging markets specialist at T. Rowe Price, says interest rates will remain a concern for Latin American economies, not just because of the carry trade, but for more traditional reasons.

"Latin American companies and countries traditionally have a lot of debt and servicing that debt will become much more difficult if interest rates move sharply higher," says T. Rowe's Henry.

Henry also cites a potential economic slowdown in China as another concern. Commodity exports to China have been a major driver in Brazil's economic resurgence.

If so, any slowdown in Brazil may end up being a positive for Mexican shares, which still comprise close to a third of most Latin American funds' assets.

"Mexico is more of a defensive market," says Henry. "It's like a higher beta proxy on the U.S. recovery." That role has not been lost on investors.

The iShares MSCI Mexico Index ETF(EWW Quote) is up 12.35% year to date compared with a loss of approximately 1% for the iShares MSCI Brazil Index ETF(EWZ Quote).

So, American investors seeking returns south of the border may be staying closer to home in the months ahead.