The Italian, Spanish and Portuguese markets are offering a play on Latin American growth potential. ...
The Italian, Spanish and Portuguese markets are offering a play on Latin American growth potential.
All have strong economic and cultural ties to the massive but underdeveloped markets across the Atlantic. For fund managers looking to buy into telecom and internet stocks at an earlier development stage than is available in Europe, businesses with Latin American tie ups offer one solution.
Not only is internet penetration low in Latin America but the economic prospects seem to be positive. In Brazil, the region's largest economy, Wal-Mart is looking to raise its staffing levels by 9% in 2000.
Kieran Gallagher, fund manager of the Newton Continental European fund, says: "We are interested in the Spanish and Portuguese markets because of the growth momentum in South America and the investment that the telecoms operators have, particularly in the mobile and internet areas."
Gallagher holds Spanish telecoms firm Telefonica which has seen its share price rise by 122.04% in euro terms between 1 March 1999 and 29 February 2000. The stock is now on a P/E of 53.81 times. In addition he holds Portugal Telecom which has seen its share price rise by 65.8% in euro terms over the same time period, with the stock on a P/E of 33.16 times.
Gallagher is also playing the theme of banking mergers and acquisitions within Europe. Evidence of this is the portfolio's weighting in Banco Pinto in Portugal which is being lined up for takeover by five Spanish and Portuguese banks. Banco Pinto is on a P/E of 24.89 times and the company saw its share price rise by 26.57% in the period between 1 March 1999 and 29 February 2000.
John Ewart, investment manager, European equities at Britannic Asset Management, says that the group looks at Europe on a sector rather than a country basis. Britannic is favouring sectors including telecoms and Ewart holds stocks such as Telefonica, which has recently spun off its internet service provider Terra Networks. Terra Networks has seen its share price rise by 260.81% in the period between 17 November 1999 and 29 February 2000.
In Italy, Britannic holds Telecom Italia Mobile (TIM). Ewart sees TIM benefiting from the expected growth in the use of mobile phones for internet access and the increased use of short-message services, which are short text messages left on mobile phones. His enthusiasm for the TIM is shared by the market as it is on a P/E ratio of 90.68 times and its shares rose by 141.84% in the 12 months to 29 February.
In Italy, Gallagher holds food manufacturing group Parmalat which is also benefiting from its high sales exposure to South American markets. Parmalat saw its share price fall by 8.88% in the period between 1 March 1999 and 29 February 2000 and the stock is on a P/E of 12.32 times. He also holds cement company Italcementi which Gallagher says is starting to benefit from the end of a price war in the Italian cement market, with prices beginning to rise towards European levels. Italcementi is on a P/E of 33.79 times and the company saw its share price fall by 13.84% in the 12 months to 29 February.
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