‘This is the world’s best in­vest­ment propo­si­tion’

Latin Amer­ica is poised for a dra­matic re­cov­ery, in­vest­ment pro­fes­sion­als tell Sam Brod­beck

The Daily Telegraph - Your Money - - OPINION -

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

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