Will Landers, senior portfolio manager on the BlackRock Latin American investment trust, looks at the countries driving the region's story this year...
Latin America continues to offer one of the most attractive equity investment opportunities when combining its solid top-down macro story with an attractive and diversified array of companies looking at the market from a bottom-up perspective.
Following 395.6% accumulated returns for the MSCI Total Return Latin America index during the first decade of this century, returns from 2010 to 2012 barely accumulated a positive return of 0.63%, leading many investors to question whether the region has seen its best days.
This is especially true given that the Ibovespa, Brazil’s principal index, has posted a -29.5% return during this period, partially offset by the Mexican Bolsa’s 20.5% return.
Will Landers looks at the countries driving the region's story this year...
Looking at 2013, Brazil seems poised to recover, while Mexico shows no signs of slowing down its positive momentum – a combination that should be a virtuous competition for performance, resulting in positive returns for the region’s equity markets.
The big picture
Starting with the macro story, Latin America’s turnaround from poster child of the boom-or-bust cycles of the 80s and early 90s to a region of macroeconomic stability has been well documented over the past decade.
Equity investors focus on five main countries – Brazil, Mexico, Chile, Colombia and Peru.
These have fully embraced inflation targeting as their monetary tool of choice, improving their population’s purchasing power as well as attracting foreign investment, and have adopted fiscal discipline, which reduces dependency on foreign capital markets and further enhances investments.
As a result, all five countries are currently investment grade rated or on their way to achieving investment grade ratings, have CDSs trading inside of 120 bps, and the region has been one of the least affected by the financial crisis from the US in 2008/2009 and in the EU currently.
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