More pain to come for investors?
This week, FundCalibre held its annual investment dinner for financial journalists. Speaking at the...
From Mexico’s Copper Canyon to the Bolivian salt flats and Venezuela’s Angel Falls, Latin America has a lot to offer. The same is true when it comes to investment opportunities.
However, with nearly two out of three Latin Americans choosing a new leader over the next 12 months, what could this mean for stock market returns?
Chile and Honduras have kicked off the year-long cycle. Brazil, Colombia, Costa Rica, Mexico, Paraguay and possibly Venezuela are to follow. Some observers are worried that populism could come home to roost on the continent – as it did in the developed world last year. However, with central banks gaining more independence, there are plenty of checks and balances in place which go a long way to reassure investors.
Claudia Calich, manager of M&G Emerging Market Bond fund, believes that the elections are one of a number of risks to be monitored, but should not be a deterrent. Some of the fund’s largest country allocations are to Latin American markets where Claudia believes solid real yields and falling inflation are keeping the fixed income environment attractive.
Claudia commented: “In Brazil, economic growth has picked up, despite renewed political turmoil, while declining local inflation has helped the country’s central bank to lower interest rates. While Mexican assets could react to the politics as well as the economic story, a winning government would probably need a large majority to undo the reforms that have so far taken place. We think this outcome is unlikely and, in turn, remain constructive on the country. In the fund, our sovereign selections include long-dated government bonds, such as positions in the country’s ‘century’ bonds and securities maturing in 2047.”
Aberdeen Emerging Markets Bond fund also has a decent weighting to the region, with bonds from Argentina, Brazil and Paraguay among its top ten holdings. The managers are also finding value in countries such as Ecuador, where they have invested in the state-owned Petroamazonas, as well as Honduras and El Salvador.
When it comes to Latin American equities, Argentina led the way in 2017, returning 58% in sterling terms over the calendar year and a huge 73% in US dollar terms. There, President Macri, who took office in 2015, was elected against the global populism tide and his series of fundamental reforms to make the economy more free market-oriented have been welcomed by investors and lenders.
According to T. Rowe Price managers, another important trend in the country is that the Argentinian index is becoming more diversified with financials, oil and gas, utilities, infrastructure and tech companies coming to the market.
Murray International Trust has a high weighting to both Latin American bonds and equities. In the fixed income space, the manager has Brazilian, Mexican and Uruguayan bonds in his top ten, which are all helping to increase the yield on the investment trust. In the equity portion of the portfolio he has holdings in ASUR, a Mexican airport operator and SQM, the Chilean chemical company.