Investing: Latin America bucks dour trends

If grim markets this year have skewered your portfolio's returns, you probably weren't investing much in Latin America.

While many world stock markets have been suffering, Latin America's have refused to follow suit. Through June 4, the Morgan Stanley Capital International Latin America equity price index has gained 11.6 percent this year, while the MSCI Emerging Markets index fell 5.8 percent and the MSCI World index shed 5.3 percent of its value.

Within Latin America, the MSCI Brazil stock index jumped 13.4 percent this year through June 4, while Argentina's leapt an even higher 22.5 percent. In addition, Colombia's stock market rose 16.7 percent, while Mexico's market climbed 7 percent.

Evidently, this showing wasn't just a one-off event: Over the five-year period, Latin America was collectively the best performing stock market region in the world on an annualized-return basis, MSCI data show.

Behind Latin America's good showing, many experts cite global demand for commodities, such as oil, iron ore, and other metals that Latin America supplies. Such trends added punch to an overall economically brightening picture in the region. "Latin America is experiencing its fifth year of steady expansion. The region's economy has been growing, creating more employment [and] rising incomes, but generally lower inflation, which means greater purchasing power for Latin Americans," sums up Alfredo Coutino, senior economist for Latin America at Moody's Economy.com.

All the while, the region's trade expansion beyond the United States market now helps limit any impact of a US recession, he holds.

Meanwhile, the region continues to offer attractions for socially responsible investors, some experts say. Some companies there "have themes in their sector or industry that play well in sustainability," says Lauren Compere, shareholder advocacy director at Boston Common Asset Management. But she would avoid "polluters" or "companies that create degradation in the mining or extracting process."

Despite Latin America's growth, signs suggest many international investors aren't pouring money into Latin America right now, chasing after good returns. This year through May 28, US-registered Latin American mutual funds had net inflows of $362 million, according to data of AMG Data Services. Although that exceeds the net $309 million into this category in the first five months of 2007, it's almost $1 billion less than the net inflows during the same period in 2006.

Moreover, the Merrill Lynch Fund Manager Survey for May showed a lessened enthusiasm for Latin America among global emerging markets managers: Asked about their most preferred emerging-market region over the next year, only 29 percent of survey respondents cited Latin America – more preferred to invest in emerging nations in Europe, the Middle East, and Africa.

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

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