As the old adage says, there’s always a bull market somewhere. Right now, it isn’t east, west or north, but south.

Among the hot-performing exchange-traded funds of 2022 are those tied to stocks in the Southern Hemisphere, funds like the iShares MSCI Brazil ETF (EWZ), which has gained 17.25% so far this year, as well as the iShares MSCI Chile ETF (ECH), which has gained 10.40%, and the iShares Latin America 40 ETF (ILF), which has gained 12.55%. Brazil especially has stood out.

Leveraged ETFs tied to the region have delivered similarly strong bullish results.

The Direxion Daily MSCI Brazil Bull 2X Shares (BRZU), which aims to double the daily performance of Brazilian stocks held inside the index, has jumped 22.64% this year.

Latin America encompasses countries from both Central and South America, including Brazil, Argentina, Chile, Colombia and Mexico, and equity funds in the region have handily outperformed emerging market peers in Africa, Asia and Europe. The Vanguard FTSE Pacific ETF (VPL), for instance, has fallen around 24% this year, while the VanEck Africa Index ETF (AFK) has fallen about the same. The iShares MSCI Poland ETF (EPOL) has been the worst performer, tanking almost 50%.

The iShares Latin America 40 ETF holds a diverse basket of stocks from countries in Central and South America. The fund is heavily concentrated in Brazil (64.77%) and Mexico (22.38%). Despite this year’s modest 1.6% decline in the fund’s Mexican stocks, the hot performance in Brazilian stocks has driven most of the fund’s upward spike. 

Other countries like Chile, Colombia and Peru account for the remaining 13% or so of the fund’s equity exposure. The iShares Latin America 40 charges 0.47% annually and has $1.06 billion in assets under management.

The stock gains in Latin America have been driven by sky-high global commodity prices. The region is a leading exporter of commodities, including oil and base metals, and has benefited from the rising prices, especially in energy commodities, where the levels have remained stubbornly high.

Politically, Brazil is in the midst of a heated presidential election pitting a former president with leftist leanings, Luiz Inácio Lula da Silva, against the current president, Jair Bolsonaro, a former army captain. Most public polls show da Silva with a small lead. But up until now, the tight presidential race hasn’t slowed stock prices. 

The country’s stock market has reacted positively to the aggressive interest rate hikes pursued by Brazil’s central bank, a monetary strategy meant to fend off inflation. The rate hikes began last year and have taken the SELIC rate from a low of 2% in March 2021 to an eye-popping 13.75% last month. (The SELIC rate refers to the country’s Special System for Settlement and Custody, and is equivalent to the U.S. federal funds rate.)

In contrast to Brazil’s central bank, the U.S. Federal Reserve was slow to lift interest rates to fight inflation. Brazil started the process last year, while U.S. rate hikes didn’t take hold until this year.

For now, it appears financial markets are behaving like Brazil’s rate hikes may be done. Moreover, it’s just what stock market bulls want to see.