Value can still be found in Latin American markets even though valuations across the region have ris...
Value can still be found in Latin American markets even though valuations across the region have risen to around 10 to 11 times expected earnings, according to Rosie Bichard, manager of the Deutsche Latin American Companies investment trust.
Bichard noted that since 1994, there has been a huge increase in emerging market valuations, as compared to other developed markets, because the asset class offers comparatively cheap exposure to a US recovery.
In the past 12 months, which saw the Argentine crisis, 11 September and US recession, the MSCI Latin American Free Index has held up well, with losses of just 2.8% in sterling terms over the year to 28 February.
After 11 September, many market commentators predicted the end of the world for Latin America, said Bichard. However, in the first quarter of 2002, the MSCI Latin American Free Index rose, in sterling terms, by 9.5%.
Bichard said Latin America does not perform in the same way as most other developed markets and, while it has rallied since January this year, the MSCI World Index is down around 15%.
The Deutsche Latin American Trust benefited during the recent rally. It is top of its sector over three months to 15 April 2002, with a share price return of 16%, compared to the sector average of 12.1%. Over one year, the share price has returned 9.8%, compared to the sector average of 12.1%.
Bichard said Latin America has been a strong performer since 1990. She added that £1,000 put into the index in that year would now be worth around £4,000, while the same amount invested in the MSCI World Index would have only returned about £2,000.
She said: 'Latin America has been volatile over the past 10 years, with the tequila crisis in Mexico in 1994 and the Russian crisis in 1997. But if you are brave enough to invest, you can get good returns.'
Deutsche Latin America is invested in three markets: 50.2% in Mexico, 39.8% in Brazil and 10% in Chile. Bichard has been in and out of Argentina over the past two years. She said the departure of five cabinet ministers during the past year and a half shows it is a country with many problems and she is in no hurry to invest there again.
She said: 'Although the crisis in Argentina is far from over, and could potentially deteriorate further, there are unlikely to be major repercussions for the rest of Latin America. Looking forward for the region as a whole, we expect the largely positive growth trend to continue.'
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