Investing: Latin America bucks dour trends

Markets there produce healthy returns, but some analysts expect a correction.

from the June 9, 2008 edition

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In interviews, some – but not all – managers expressed concern about the run-ups already in some Latin markets, given the global economic slowdown.

"At this stage, I'd be cautious [about Latin America] and wait until stock prices come down," suggests Simon Hallett, chief investment officer of Harding, Loevner Management in Somerville, N.J. "Sentiment [has been] powerfully in favor of Brazil," he says, so right now, there "doesn't seem room for sharp positive surprises."

Acadian Asset Management in Boston has "recently gotten more cautious on Brazil because it's done so well," says John Chisholm co-chief investment officer for the company. Instead, the firm now prefers such markets as Russia's and South Korea's.

Within Latin America, "Mexico remains a ... market in which we believe we can do well," says Mr. Chisholm. Among the factors favoring Mexico, he holds: are its currency, since the Mexican peso "looks less extended than the Brazilian real; monetary policy, which is a little looser in Mexico than Brazil," and, on balance, oil prices, since "Mexico exports more oil than Brazil."

Fiona Morrison, investment manager in London of the Aberdeen Emerging Markets fund likes the long-term domestic growth story in Latin America. But for now, she's pessimistic about emerging markets as a whole. "We expect further corrections in these markets," she says. "Most analysts expect 15 percent earnings growth in 2008 for emerging markets, which we think is optimistic. As [actual] earnings come out, emerging markets will be downgraded, and we expect a leg down again in the performance of the markets," including Latin America's.

But some investment pros continue to champion Latin America. "Possibly the pace of gains seen recently won't be sustainable, [but] we still believe the region will perform well over the short, medium, and long term," says Nick Beecroft, portfolio specialist with T. Rowe Price in London.

With stock holdings such as those of retailers Wal-Mart de Mexico and Lojas Renner in Brazil, T. Rowe Price's Latin America Fund is "heavily biased toward domestic growth," he says. But the fund also has "big positions" in multinational firms in Brazil, including Vale, a mining company, and Petrobras, an oil producer.

BlackRock Inc., a mutual fund company in New York, not only has a Latin America mutual fund but an overweighting to Latin America in its emerging markets portfolios. Most the firm's "global fund managers have it as an overweight as well," says Will Landers, the company's senior portfolio manager for Latin America.

Given the range of positive trends there, Mr. Landers believes it's "a good time to be investing in that region."

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