Are Latin American markets undervalued?
The past decade has been difficult for Latin American markets. The MSCI Latin America Index has consistently underperformed the broad MSCI Emerging Markets Index since 2014. Gross domestic product in Brazil, Latin America’s largest economy, grew just 0.27% on average per year between 2011 and 2020. Massive turbulence in Venezuela sent bond markets ricocheting and falling in 2019. And the pandemic, combined with disorderly politics in many parts of the region, made some investors even more pessimistic . But it’s not all bad news.
“What we’ve seen over the last two quarters is that Latin America has come back into the investment discussion,” said Will Landers, head of Latin American equities at BTG Pactual Asset Management.
The MSCI Latin America Index shows that the region is one of the few to have experienced positive growth in the first quarter of 2022. In fact, it recorded a gain of 26.1% as measured by the MSCI Latin America ETF . Last year’s aggressive monetary policy in countries like Brazil, Chile and Mexico also led investors to believe that these countries may be faster to recover from inflation than the United States and the United States. Europe, which is just beginning to adopt rate hikes.
“Most central banks in the region have already done the heavy lifting to get rates back into positive territory,” Landers says.
Landers believes that because of this, Brazil has undervalued stocks that are particularly good buys right now.
“I think we can expect rate cuts in Brazil in the middle of next year,” Landers said. “Once that happens, I think consumer discretionary stocks, which have been a favorite of many investors in the past, will come back.”
Landers is also optimistic about Mexico, especially as more investors and businesses move to the country due to its easy access to the United States.
“We love certain parts of Mexico, especially those related to exports and offshoring,” says Landers. “A lot of companies in Asia are bringing production capacity to Mexico because it’s closer to the United States and it’s easier to trade with the United States there.”
Another country with many potentially undervalued investment opportunities is Chile, according to Landers.
“The market is trading very cheap compared to its historical average despite the fact that I think the region-specific risks are lower than they have been on average over the past decade,” he says.
Chile is a major producer of iron, ore, copper and lithium.
“There aren’t many places where you can get this stuff competitively,” Landers says.
However, there are still countries in the region that Landers avoids.
“We stay away from Colombia and Peru,” says Landers. “These are not very liquid markets, and there is currently too much political uncertainty in these countries.”
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Tags: Latin America, Brazil, BTG Pactual Asset Management, Chile, Colombia, emerging markets, Mexico, Peru, Will Landers