Latin America has more than its fair share of economic and political scandals that regularly make global headlines.
But behind all the media noise, could the region offer long-term investing opportunities?
When investing in emerging markets is spoken of, most people’s minds wander to Asia. Whether it’s excitement over Chinese technology companies, hope that India will be the new China, or a wish to get in from the ground up in frontier economies such as Vietnam, Asia is the focus of most investors’ attention in 2018 (as it was last year).
However, when you look at passive returns from the first three months of 2018, Asia’s emerging and frontier economies have been eclipsed by returns from Latin America, which have surged ahead. iShares Latin America 40 ETF has produced a three-month return of 16.8 per cent to 8 March. In comparison, the wider iShares MSCI Emerging Markets ETF’s three-month return was 8.9 per cent, while iShares MSCI All Country Asia ex Japan ETF produced 5.9 per cent.
Of course, index returns are not the be-all and end-all, but it is notable that Latin America’s index has outperformed both the broad emerging market and Asian indices. As the US magazine Barron’s summed it up in February: ‘A weird thing happened in emerging market stocks after this month’s market stumble: Latin America started outperforming.’
This strong performance, says Chetan Sehgal, the recently appointed lead portfolio manager of Templeton Emerging Markets investment trust, ‘was driven by a supportive global environment, higher commodity prices and stronger regional currencies.’ Against that backdrop, over the past year Latin American economies have seen significant improvement.
‘Latin America saw an extended period of underperformance from 2011 through to 2016, resulting from challenging global conditions as well as domestic factors,’ says Tom Smith, head of Latin American equities at Neptune. Since then, however, ‘the investment case has transformed dramatically, with much more supportive global conditions and a significant improvement in the political landscape across the region.’
Last year, the region saw a pick-up in economic performance, with annual growth of 1.9 per cent in 2017 – one of the strongest readings in recent years. And this uptick seems set to continue. ‘There is an expectation that most countries will be posting better growth this year than last,’ says Will Landers, manager of the BlackRock Latin America investment trust.