Asset Allocation: Market Analysis - South America - Taking steps to stem hot money flows.

Latin American stocks have resumed their ascent in a four-year rally that has yet to run out of steam. Benchmarks in Brazil and Mexico jumped to record levels in mid-May, making them among the world's best-performing markets so far this year. Although the recent highs across Latin America have sparked talk of a looming correction, we are optimistic about the region's long-term prospects.

Optimism stems from specific opportunities in Brazil and Mexico, the region's economic powerhouses which together comprise about 85 per cent of the MSCI Latin American Index. Brazil,