Cashing In On 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 funds top five Latin American countries by percentage of the portfolio allocated to each:
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.
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 countrys economy is growing rapidly (its 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.
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. Perus middle class is also growing, and as a result, so is consumption, he adds.
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. Thats one reason the fund favors financial sector stocks such as BanColumbia (CIB) and Banco Da Vivienda (PFDAVVND), he says.
Overall, Colombia is attractive as its 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. Theres been significant progress containing the threat from guerilla groups, and the country has a strategic geographic location, he adds.
Fixed-income markets in Chile are highly liquid, and the countrys 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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