In Latin America, a few rotten apples have scared investors away from the bushel. Despite this the continent is home to many opportunities.
The search for yield has sent investors looking in some unusual places. With interest rates at record lows in much of the developed world, money has been pushed into riskier assets. U.S. equities have performed particularly well with both the DJIA and S&P trading above their all time highs. Yet, growth in America remains sluggish with the IMF predicting a 1.7% GDP increase this year. Much of Europe remains mired in recession and potential currency and banking crises will continue to scare investors. In Asia the picture is mixed with “Abenomics” offering hope in Japan, mixed signals from China, and an unexpected first quarter GDP contraction in Singapore. In Latin America, a few rotten apples have scared investors away from the bushel.
Latin America more complex than headlines make out
Growth in Brazil, which was a paltry 1.3% in 2012, has cast an undeserving shadow across the region. Outside of Brazil there appears to be significant economic opportunities in a variety of countries and economic sectors. Consider the high growth rates in Panama (8.5%), Peru (6%), Chile (5%), Costa Rica (4.8%), and Columbia (4.3%) to name just a few. Furthermore, most of these countries have reasonably strong institutions, decent investor protections, and stable political systems.
There is no doubt the region still has trouble spots. Political uncertainty in Venezuela and regulatory inconsistency in Bolivia should be taken seriously. Similarly, economic mismanagement in Argentina has not faded and the IMF recently scolded the country for inaccurate inflation data. Infrastructure continues to be a perennial issue with rolling blackouts common in several countries. Put together, this means that investors should pick their spots carefully, but ignoring Latin America due to the bad headlines of a few would be a serious mistake.
Indeed, in many countries policy makers appear to be pursuing an innovative agenda of reform. Chile has become a Mecca for entrepreneurs and has done an excellent job taking advantage of stringent visa requirements to America. Despite some attention grabbing student protests, the administration of Sebastian Pinera has done a very sound job in steering the Chilean the economy. An election due later this year appears likely to return Michelle Bachelet to power. Ms. Bachelet was President during the financial crisis and helped Chile avoid its worst effects. Meanwhile, Mexico’s new president Enrique Pena Nieto has earned a reputation as a trustbuster with a keen drive to make his country more competitive and market oriented. His plans for the telecom and energy sector are particularly promising and should help revive Pemex (Mexico’s underperforming state owned oil company).
The bottom line here is not that Latin America is all good, but rather that it is not all bad. Brazil, Argentina, Venezuela and others have grabbed most of the headlines lately. Yet this has served to obscure bright spots in the region that have been largely overlooked of late. It is a good time to give Latin America a closer look.