Cashing In On 5 Top Latin American Markets

5 Top Latin American Markets 5 Top Latin American Markets

Advisors looking to diversify client portfolios into international and emerging markets investments should take a close look at Latin America, says Heiner Skaliks, portfolio manager of the Strategic Latin America Fund (SLATX).

The fund is offered, registered and administered in the U.S., with an investment team based in Bolivia. “In general, countries across the region have tools from a monetary and fiscal policy perspective to combat an economic slowdown and encourage foreign direct investment,” he notes. Several countries in the region have had ratings upgrades for their debt, he says, and an expanding middle class is creating growth opportunities.

Here is in an interactive slide show that details the fund’s top five Latin American countries by percentage of the portfolio allocated to each:

1. Mexico: portfolio allocation of 40.6% 1. Mexico: portfolio allocation of 40.6%

As Goes the U.S. Economy, So Goes Mexico

South of the border, Skaliks favors fixed income, such as the bonds of financial companies Financiera Independencia and Credito Real, to name a few, as well as equity, including Grupo Banorte (GFNORTEO), Cemex (CX), America Movil (AMX) and homebuilders like Homex (HX) and Ica (ICA).

“A pickup in the US economy should favor Mexico, as the U.S. is its largest trading partner, “ he says. “We find the foreign exchange rate favorable and attractive with the potential to appreciate.” Mexican companies’ growth prospects are also boosted by a “large, growing middle class and regional expansion strategies,” he adds.

 2. Brazil: portfolio allocation of 25.5% 2. Brazil: portfolio allocation of 25.5%

Bonds Over Stocks

In Brazil, the fund favors fixed income in U.S. dollars from financial companies (such as local banks, including Banco Industrial e Commercial) and consumer staples and food industry firms (such as JBS).

“Equities, we believe, have a limited upside potential” in the country, Skaliks says, as the “exchange rate is still too overpriced.”

Inflation is something to watch out for, however, as the country’s economy is growing rapidly (it’s already the sixth largest economy in the world). Also, Brazil is hosting the World Cup in 2014 and the Olympics in 2016 – the additional funds these events will bring into the country may also act as a catalyst for inflation.

 3. Peru: portfolio allocation of 8.4% 3. Peru: portfolio allocation of 8.4%

Going for Gold

Peru is one of the leading mining countries in the region, and here the fund favors gold mining stocks, such as Empresa Minera Buenaventura (BVN), as well as financial sector stocks like Credicorp (BAP) and consumer staples stocks like Alicorp (ALICORC1).

The country also benefits from substantial foreign direct investment, Skaliks notes. What he likes about Peru is its “sound monetary policy and especially foreign exchange management,” as well as relatively contained inflation, he says. Peru’s middle class is also growing, and as a result, so is consumption, he adds.

 4. Colombia: portfolio allocation of 6% 4. Colombia: portfolio allocation of 6%

Banking on Banks

Bank stocks seem poised for growth in this country, Skaliks says, as right now there is a “low degree of access to financial services” relative to the demand. That’s one reason the fund favors financial sector stocks such as BanColumbia (CIB) and Banco Da Vivienda (PFDAVVND), he says.

Overall, Colombia is attractive as it’s the country in the region with the highest level of direct foreign investment, and it has good foreign exchange management and low inflation as well, according to Skaliks. There’s been significant progress containing the threat from guerilla groups, and the country has a “strategic geographic location,” he adds.

 5. Chile: portfolio allocation of 2.2% 5. Chile: portfolio allocation of 2.2%

Upgraded Debt

Fixed-income markets in Chile are highly liquid, and the country’s sovereign debt was recently upgraded to investment grade level. Fixed income names the fund likes include Banco Santander and Inversiones CMPC, Skaliks says.

He notes the country also benefits from “sound fiscal and monetary policies,” and the recent credit rating upgrades are one part of that, he says. Politically, Chile is stable and inflation is not a problem, he says.

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