Internatinal Investment Funds
The surge in Latin American fund interest is easier to explain
in some ways, because the region’s growing trade links with
the United States means that it’s much more familiar to US
investors. In other ways, however, it’s downright impossible
to explain because the region is juggling with such a lot of sensitive
issues on the political and economic front.
Indeed, part of Latin America’s trouble is that it is almost
too liquid for its own good: these days, the first whiff of news
is enough to send an over-sensitive market shooting up or down.
That, of course, is what happened in January 1999 when a rumour
about Brazil’s inability to honour a debt instalment created
such a run on the currency, the real, that it upset the whole course
of Latin American trade patterns for the next two years. Nowadays
Brazil is more or less back on the rails, thanks to a strict austerity
programme and a timely shot of money from the IMF. But Argentina
is in a different situation.
International Investment Funds & Latin Standards
Having always been a relatively high-cost manufacturing economy
by Latin standards, it has had to battle hard to stop its exports
from shrinking. Its government, elected last year, has failed to convince
its own people of its determination to keep growth moving along and
so, by mid-November, it was also looking for IMF money. At present,
it’s almost unthinkable that the Fund will refuse it, if only
because the cost of failure would be so high. It would be good
to say that the markets are as sanguine as this, but, unfortunately,
the evidence is all running the other way at the moment. Only 27
of the 90 offshore Latin American equity funds currently listed
by Standard & Poor’s have made a capital gain in the last
six months, compared with 84 who achieved a result in the last year.
Best performers include Aberdeen IF Latin America (up by 16 per
cent since May), Baring Puma (up by 14 per cent) and Kleinwort Benson
Key Latin America (up by 9 per cent). But they’ve achieved
these gains against a pretty scary backdrop: the Brazilian and Argentinian
markets have both lost 23 per cent of their dollar value since January,
while Mexico and Chile fared slightly better with a mere 12 per
cent loss.
International Investment Funds And Argentina's Troubles
Argentina’s troubles prompted S&P to lower its foreign
debt rating from BB to BB- last month - despite the International
Monetary Fund confirming it was putting together an aid package
for
the country.
There was better news for Hungary, whose reputation as a good place
to invest gained further credibility when Moodys investors service
upgraded the country’s foreign currency ceilings to A3 from
Baa1 for bonds and bank deposits, as well as for its outstanding
currency bonds . It’s clear over in London that the best year-on-year
offshore performer in the Micropal listings, Lion Fortune Latin
America, lost 16.5 per cent of its capital value in the year to
November and tumbles of 40-50 per cent were more typical.
There are two things that might change for the better, however.
Firstly, the markets are quite well aware that the very poor stock
market results from South-East Asia (average capital loss this year,
about 40 per cent) will have diverted American money toward these
closer-to-home emerging markets. Secondly, they sincerely believe
that Latin markets are undervalued in the long-term: nobody should
forget that Mexico’s economy is growing by 8 per cent a year,
with a newly-elected government that’s working hard on its
relationship with Washington, or that Chile is growing by 6 per
cent and Brazil by 4 per cent.
International Investment Funds & Russia
As with Russia, the feeling is that equities in Latin America are
now cheap enough to be buyable at almost any risk rating. Top-grade
Mexican or Argentinian companies now command a princely price/earnings
ratio of 12, and in Brazil they’ve fallen as low as 3.5 (Bovespa
index, mid-November). It’s only in Chile (average p/e 20) that
valuations are more ambitious and that, in turn, is partly because
the Chilean market is rigged against any local who wants to buy foreign
stocks. But elsewhere in the region, as we’ve suggested,
there simply aren’t enough reasons to justify the present
bearish sentiment. Expect to see Latin valuations rebounding strongly
in the new year. Expect too to see enormous demand for privatisation
stocks, telecommunications and utility companies. In Mexico, watch
out for any sign that the state’s traditional grip on the
oil and gas industries might be further loosened. Mexico has a lot
of oil and the prospects are excellent.
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