(Story updated to note that Brazil's 2012 inflation rate forecast was trimmed to 5% from 5.5% by Banco Santander.)
BOSTON ( TheStreet) -- The best investment returns this year are coming from Latin America, where Brazilian banks and oil companies have driven the region's average share-price gains into double digits.
That's due mainly to the Brazil central bank's easing of its monetary policy, the region's growing middle class, and China's sustained demand for Latin America's commodity exports.
Latin American stocks, as measured by the MSCI EM Latin America USD Index, are up an average 15.9% this year through Feb. 14, more than double the S&P 500's 7.4% gain and a shade behind the Hong Kong Hang Seng Index's world-leading 16.3% return. That's a big turnaround from 2011, when Latin American stocks plunged 22.6%, the second-worst regional category performance, according to Morningstar. The region's history of volatility is still keeping investors cautious. EPFR Global reports that Latin America equity funds have grown by $464 million this year through Feb. 14 after huge outflows last year. S&P Capital IQ equity analyst Esther Kwon attributed the region's revival to promising signs in "the eurozone bailout progress, potential signs of a soft landing in China and some improvement in U.S. economic data," which, she said, make top-ranked Latin America-focused mutual funds attractive as portfolio diversifiers. The same holds true for its individual stocks. "Certainly, the region's prospects depend on a recovery in developed countries' economic growth and strong commodity prices," Kwon wrote in a recent research note. The World Bank has forecast GDP growth of 3.6% in 2012 and 4.2% in 2013 for the region, a bit below developing countries' growth projection of 5.4% in 2012. On a positive note, Banco Santander (BSBR) reduced its forecast for Brazil's inflation rate this year to 5%, from its previous 5.5% estimate, as it expects the rise in regulated prices to slow and electricity price increases to be muted, the bank said Monday. Brazil's inflation rate reached 6.5% last year. Here are 10 highly rated, top-performing Latin American stocks trading as American Depositary Receipts (ADRs) in inverse order of returns this year. Note that many of those with the highest returns are paying hefty dividends: