‘This is the world’s best investment proposition’
Latin America is poised for a dramatic recovery, investment professionals tell Sam Brodbeck
After half a decade in the wilderness, emerging markets are bouncing back – and experts expect Latin America to lead the charge. The emerging markets, which include the likes of Russia, India, South Africa and Poland, have been battered since 2010 by falling demand for raw materials and a strong dollar.
But they have rebounded since the start of the year: one key measure, the MSCI Emerging Markets index, has risen by 27.4pc, compared with a 9.2pc rise in the FTSE 100.
Returns from Latin American countries are now leading the pack as prices of commodities such as oil and copper recover and Left-wing leaders give way to more pro-business politicians. Ashmore, a specialist emerging market investment firm, has said “today Latin America offers the best investment proposition of any region in the world”.
Is this the view of other investment experts and, if so, how can investors get a piece of the action?
Why the lost years?
Emerging markets rely heavily on demand for commodities, so the slowdown in the growth of the Chinese economy hit hard. The consequent decline in the price of raw materials hurt countries such as Brazil, a large exporter of oil.
At the same time the US dollar has been strong as the result of rising interest rates. Again, emerging markets suffer as key exports are made more expensive, and governments and companies pay more to service dollardenominated debts.
Russ Mould of the fund shop AJ Bell added that the wealth generated in the good times “arguably wasn’t spent wisely by some of the Left-leaning governments of the time”.
The bounce back
But Mr Mould argued that rising commodity prices and a stabilising political environment should see Latin American countries outpace their emerging market rivals.
He said: “Oil is up substantially from its lows, as is iron ore. On political reform, Brazil is promising marketleaning changes and Argentina is finally coming in from the cold. In Mexico there is still hope that President Nieto can deliver. You still have more radical figures in Bolivia and Venezuela, but progress is being made.”
How can investors access the market?
As always investors have a choice of active or passive funds, which aim simply to track a stock market index. In theory active managers should prosper in a region such as Latin America where markets are less efficient than their Western counterparts.
Given emerging markets’ volatility, savers are advised to remain invested for the long term. In terms of how much to allocate to the region, emerging markets make up 10pc of the MSCI World index so allocating the same proportion could be a handy rule of thumb.
The Stewart Investors Latin America fund, managed by Tom Prew, comes top for returns over the past few years, earning investors an impressive 50.6pc over the past 12 months. It has ongoing charges of 1.19pc a year.
However, Laith Khalaf of the fund broker Hargreaves Lansdown warned tentative investors to begin with funds that offer broader exposure. “Emerging markets go through growth spurts at different times – sometimes Latin America will be the jewel in the crown, but more recently it has been India,” he said.
“For most people you need a general global emerging markets fund as a starting point.” He picked out the JP Morgan Emerging Markets fund, which charges 1.18pc a year, as a starting point, or the Aberdeen Latin America Equity fund (1.28pc a year) for more targeted investments.
Mr Mould recommended BlackRock’s Latin American investment trust (1.12pc).
There is hope for progress in Mexico, one expert said. Above, Mexico City