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International 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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