Latin American stocks to look out for
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Latin American stocks are soaring. The region’s main indices have seen double-digit growth for the last three years, with Brazil, Mexico and Argentina up by a respective 37%, 21% and 17% this year. The boom is being fuelled by strong economic growth, thanks to high demand for the region’s commodities, and higher consumption; Argentina notched up annual growth of 10% in the second quarter, while Brazil managed almost 5% last year. The region has also reduced its exposure to external shocks, says Wirtschaftswoche. Trade balances are positive, foreign currency reserves are growing, many national budgets are in surplus and inflation has been tamed. All this helps explain why rising US interest rates - which typically make investors pull out of emerging markets - have hardly impacted the region.
Can this boom endure? Absolutely, says Will Landers of the Merrill Lynch Latin America Fund on TheStreet.com. The region is trading well below historic valuations and should weather a global slowdown. Still, complete immunity is unlikely, says The Sunday Times. A sharper-than-expected rise in US interest rates could cause trouble. Brazil is a favourite market among regional analysts - interest rates have just been cut for the first time in 18 months, which bodes well for consumption, and exports are reaching record levels. Mark Asquith, South America Strategist for Lloyd George Management, notes that the market’s pe of nine is below the emerging-market average, and that presidential elections next year should result in a victory for a more market-friendly centre-right candidate. Merrill Lynch sees scope for a 17% rise in the MSCI Brazil Index over the next year.
Possible plays on the region include the F&C Latin American Investment Trust, which is up 281% in three years, and Invesco Perpetual Latin American fund, up 289%. For individual stocks, Morgan Stanley has raised its target price for Brazilian mining group CVRD (RIO, $39 in New York) to $50, thanks to strong iron-ore prices, while Wirtschaftswoche reckons Brazil’s Banco Itau (ITU, $24) and Argentina’s Cresud (CRESY, $11), which owns farmland and produces agricultural products, are worth a look.
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