Fund managers have been positioning their portfolios towards Mexico, Peru and Chile but remain caut...
Fund managers have been positioning their portfolios towards Mexico, Peru and Chile but remain cautious towards Brazil in the run up to the country's elections in October.
Michael Konstantinov, head of emerging markets at Dresdner, said Mexico's proximity to the US means it will benefit from a US recovery. The DBLA Dresdner RCM Conquistador fund is overweight Mexico and has recently been upgraded by ratings agency Moody's.
Konstantinov said he has seen compelling stories on the retail side as valuations have come down, as well as good performance on the financial side. Grupo Financiero Banorte is an example of a restructuring story that has seen strong consumer growth, he said, and the Mexican government has bought a stake in the bank.
Luiz Ribeiro, manager of the ABN Amro Latin America Equity fund, is overweight Mexico but believes the country has suffered due to doubts about the US economy.
He favours the Mexican banking sector because it is cheap and offers good growth prospects. Consumer loans will start to increase as the economy starts to recover, he said.
Ribeiro likes the retail sector because purchasing power has recovered and salaries are rising, making it possible for consumption to recover. In retail, he favours Walmex, a subsidiary of Walmart, as it is in a good financial position and has no debt.
Although the Brazilian macro environment has been improving, it has been overshadowed by the forthcoming political election in October, according to Konstantinov.
There is a possibility left-wing candidate Luiz Inacio Lula da Silva could win and there is concern this could decrease the pace of economic reform, he noted.
The Conquistador fund has an underweight position in Brazil. Konstantinov favours the export sector in the country because it is not being impacted by the devaluation of the currency.
Ribeiro is underweight Brazil but is adding to this position because he sees many companies with good valuation levels. He favours the telecom sector because of its low risks and the fact there are many companies with good cashflow generation.
Ribeiro also likes the banking sector and said the market has priced in the previous debt levels.
Ribeiro remains underweight Brazil because of concern over the result of the upcoming election but feels the government candidate, Jose Serram, will beat his left-wing rival. A former senior politician from the left-wing party was involved in a recent financial scandal, he noted, and, once the television campaign starts, the government candidate will receive more airtime than the opposition's candidate.
The fund is overweight Chile, where it has two major positions including mining company Antofagasta. Ribeiro favours the company because it has increased production and should benefit from a global recovery.
He also favours wine producer ViÃ±a Concha y Toro because it has low debt, good management and exports most of the wine it produces.
The fund is overweight Peru, where Ribeiro favours gold mining company Buenaventura because it is a low-cost producer, has increased corporate governance and has given minority shareholders the same rights as corporate holders.
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