Fund managers are predicting a strong year for Latin American markets based on falling commodity pri...
Fund managers are predicting a strong year for Latin American markets based on falling commodity prices and global growth.
Hopes are also rising that the Latin American markets will become more independent of the fortunes of the US market and Nasdaq index.
Fund managers remain focused on the big four of Mexico, Brazil, Chile and Argentina with the remaining markets perceived as too small to provide sufficient liquidity or stock choice.
Steve Blackie, head of Latin America at Edinburgh Fund Managers, is positive on the region and has overweight positions in Brazil and Mexico.
He predicts GDP growth in 2000 will be 5% for the region as a whole, against a general market consensus of around 4%. He believes Chile will gain by up to 8%, Brazil and Argentina by 3%, Mexico by as much as 7%, and Peru by 6% to 7%.
He says: "Overall the region has improved markedly and growth is set to surprise on the upside. We are very positive on telecoms and this is skewing our weightings towards Brazil and Mexico."
Holdings include Embratel, Telesp Cellular, and Telesudeste of Brazil, and Telmex and Iusacell of Mexico. However, spurred by growth in the region, falling commodity prices, and rising consumer confidence, Blackie is also positive about the food and beverages sector, cement, media and paper. These are all heavily represented in the Mexican and Brazilian stock markets.
He hopes that Latin American markets' performance will separate themselves from the performance of the US markets, particularly the Nasdaq. Recently, he says, foreign holdings have been sold down indiscriminately in direct reaction to corrections in the US market. He says: "The problem we have had has been with the marginal buyers selling down their positions. Hopefully now that has bottomed. The focus can now come back on to fundamentals and marginal money can return to the region and the markets will begin to run up."
Andrew Telfer, fund manager of the Baille Gifford Latin America Fund, sets prospects for growth slightly lower, and predicts growth in the region of around 4% for the next two years. He says the top four stand to gain to differing degrees.
Telfer says Chile could benefit from rising copper and paper prices, but the Baille Gifford Latin America Fund remains underweight reflecting the restrictions on foreign investment in Chile and the limited availability of stock. He is also underweight in Argentina as its currency, which is pegged to the dollar, is now uncompetitively strong compared to the recently devalued Brazilian real.
Telfer is overweight in Brazil and Mexico and underweight in the smaller markets. He says Brazil stands to gain from its relatively strong export position due to the devaluation of its currency and the rise in commodity prices. Mexico continues to prosper from its burgeoning business relationship with the US, and is set to see a significant dip in inflation in 2000 to below 10%.
He adds risks in the region include forthcoming elections in Mexico.
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