27th February 2014
Fund manager BlackRock says that Latin America should post better equity performance this year. Will Landers, senior portfolio manager of BlackRock Latin American Investment Trust, believes Brazil will benefit in particular.
Will Landers says: “Economic recovery in Mexico, along with some of the cheapest valuations in the world in Brazil, and a pick-up in growth rates in the Andean region provide a back drop for better equity market performance during 2014.
“Latin America markets have posted negative returns in two of the last three years, suffering along with the rest of emerging markets as investors looked to allocate funds back to developed markets. However, we believe that the long term fundamentals still stand. Sources of growth over the next few years should come from the growing middle class and associated pent-up demand in the areas of credit and housing: these themes have not changed and are not affected by the global flow of funds.
“In addition, the region is rich in natural resources, with growing oil and gas as well as mineral reserves and has ample areas to expand in agribusiness – all areas that add to the growth story beyond the development in the region’s consumer base.”
Landers acknowledges that concerns regarding China’s growth rates will continue to impact markets. However, he believes that the Chinese authorities have the tools and the desire to orchestrate a gradual slowdown of its economy over the next decade, thus minimising any major impact on Latin American equities.
He adds: “Political stability and respect for the democratic process have reduced the impact of elections on the region’s markets. In most countries, commitment to both fiscal and monetary stability has created an attractive environment for investing.”
“We believe the Latin American market is improving especially in Brazil and will look to take advantage of this. Positive points for Brazilian equities include the success of recent toll road and airport auctions, strong employment figures, improving asset quality in the financial system and the expected end of the road for the current tightening cycle by the Central Bank this year. All of this, combined with some of the cheapest valuations in emerging markets and earnings growth that should meet the mid-teens growth expectations for 2014, should be supportive of the Brazilian market.
“In Mexico, with energy reform completed, the market’s attention will focus on fundamentals and the ability of the Mexican economy to return to growth after a disappointing 2013. We believe that further structural reform remains the most attractive route through which most Latin American countries can sustain and boost their economic growth prospects further, and this will ultimately be the path chosen by the politicians of the region’s leading economies. For this reason, although we expect volatility to continue over the short term, particularly as markets adjust to the normalisation of interest rates, over the longer term we remain optimistic about the prospects for the region and we also consider that the current valuation levels are attractive.”