LATIN AMERICA'S RENAISSANCE

Latin America's Renaissance

Ricardo Ortìz Gil Lamadrid

    There aren’t many things that professional investors manage to agree on these days. But they do tend to concur on one point; it is a great time to invest in Latin America. Last year, the region’s stock markets notched up some of the biggest gains ever seen, even though the world’s most developed markets were struggling. And I deeply believe it could happen again. In fact, taken as a whole, Latin American stock markets confirmed bigger gains than Asia, with the exception of China. Overall, investment returns from Latin America would have easily trebled gains from any other portfolio such as continental Europe, for example.

    Why? Well, for one thing there’s China. Many of the largest Latin American countries; Brazil, Argentina, Chile, and Mexico, make their easiest money by supplying Beijing with raw materials and commodities that are in great demand such as copper, grain, gold, pork products, and soya. Considering that China is forecast to top nine percent  growth in 2010 (mirroring 2009 growth), and the fact that the Chinese yuan looks set to strengthen making China’s raging thirst for imports even cheaper to quench, it would be a surprise if this significant tide of commodity exports to the East were to slow down any time soon.
   

    Then, of course, there’s oil. According to British Petroleum’s (B.P.) annual World Energy Outlook, Latin America’s oil wells hold 124 billion tons of the black stuff, or about 10 per cent of the world’s known stock. At a time when Iran, the world’s second-biggest producer, is looking politically shaky, the likelihood of a price hike for North America’s favorite addiction seems overwhelming. It’s good news for the region and a good time for investors.

    Things are also looking good on the domestic front. The Brazilian government has raised its projection for economic growth this year from 5.2 percent to more than 5.7 percent. Mexico ought to manage 3.5 to 4 percent growth if things go reasonably well in the U.S., its biggest export customer. That would be nearly three times as much growth as the euro zone and about the same as non-Chinese Asia. It’s a fact, the best investment markets in the region are Mexico and Brazil.

    Brazil is a leading producer and exporter of food products and minerals. Industries, such as steel, aluminum, pulp and paper, chemicals and textiles, and car manufacturing are contributing to economic growth projected to reach 5.7 percent in 2010. While the country’s economy had increased by 4.3 percent in the last quarter of 2009, despite a 0.2 percent decline over the entire year, the increased investment in and recovery of manufacturing in Brazil indicates that sound growth and momentum will lead overall growth in 2010.

    While Mexico doesn’t enjoy the celebrity status of its rival Brazil, its obvious that it is undergoing an economic renaissance. The Mexican economy has maintained unprecedented stability for the last seven years with little to no inflation and the peso holding firm. The country has 12 free trade agreements with 43 countries. The result—exports have surged. Mexico benefits from well-qualified labor pools, robust manufacturing and assembly industries, as well as it’s proximity to the United States, a steady consumer of products.

    Over ten years have passed since it’s last crisis, and Mexico is today enjoying record foreign currency reserves and an investment-grade debt rating, thanks to much-improved fiscal discipline. It even boasts several companies listed on the New York Stock Exchange or NASDAQ and dozens of others that trade over the counter, including Wal-Mart de México. The housing sector in Mexico is also one to watch as a huge unmet demand for housing persists. Money managers are especially keen on stocks in the residential construction business as more and more Mexicans qualify for loans to build their own homes. These include NYSE-listed Desarrolladora Homex and cement maker CEMEX. 

 
        Today, both Brazil and Mexico are riding waves of growth. Latin America owns her own destiny—it may be that now is the time to invest.