JPMorgan: Bullish On Latin America, Ultra Bullish On Mexico's Energy Reform

Kenster1_GlobalValue

http://www.forbes.com/sites/afontevecchia/2013/09/12/jpmorgan-bullish-on-latin-america-ultra-bullish-on-mexicos-energy-reform/

Investors have shunned Latin America as concerns over Fed tapering absorbed capital flows that had flown out, chasing yield, during previous rounds of quantitative easing. LatAm equities are down nearly 15% this year, having fallen dramatically from May to July, just as the yield on 10-year Treasuries shot up. Yet it would be a mistake to count Latin America down and out, explained JPMorgan Chase CEO for the region Martin Marron, who says they remain particularly bullish on Mexico and expect the whole continent to continue to deliver for investors, as the emergence of a consuming middle class, along with stronger institutions and the development of South-South business fuels steady growth.

MikeW

Hello Kenster,
Do you have a recommendation on a fund to consider for investing in Latin America? Or would you just go with broader emerging markets fund? thanks!

scott

Reply to @MikeW: I'd invest broadly in EM. Additionally, emerging markets consumer stocks (ECON etf) are long-term interesting and have held up better than EM as a whole this year.

Article today about how chocolate is going up in part because of demand from EM as consumers in these countries can buy more. "That's up from about 6.9 million tonnes in 2009, when consumption dipped due to the global financial crisis, with demand being driven by growing affluence in emerging nations.

"In the regions like Asia-Pacific or Latin America, we are seeing more middle class consumers buying chocolates compared with five or six years ago because they have the money to do it," said Francisco Redruello, senior food analyst at Euromonitor International.

"That is what's driven the growth of chocolates." (http://www.huffingtonpost.com/2013/09/13/chocolate-prices_n_3918942.html?utm_hp_ref=business)

In terms of Mexico, Wal Mart De Mexico (WalMex) remains down since the scandal of last year. If you think that that will pass, that's a lower-key way to play Mexico long-term. The foreign ordinary shares are about $2.65.

There are also a lot of other familiar Latin American names - Ambev (Budweiser Latin America), Kimberly Clark De Mexico, Femsa (owns stakes in Heineken, Coca-Cola Latin America and owns the largest convenience store chain in Latin America - also branching out further) and others.

MikeW

Thanks very much for the advice Scott. I'm going to read up on the EM funds that David covered in his monthly commentary -- especially Seafarer. I'll put some funds to work in EM.

MaxBialystock

Yes, a good number of us are already in Seafarer SFGIX. It had been underperforming. Quite underwhelming, until just very recently. But Foster has a great reputation, and I'm still counting on his acumen to show itself with a rising share price, before too long, I hope!

scott

Seafarer has not done as well as some may have hoped, but neither have emerging markets. YTD within the category I don't think it's done that badly and from what I understand it's not heavily aggressive fund, more of an income/moderately conservative EM vehicle. YTD I'd say it's probably about at what I'd expect, given the kind of fund it is and given how EM has done.

If anything, I'd look to invest more in EM at this point and while I'm not crazy about aspects of Brazil, investing in some things before World Cup/Olympics in 2014/16 is interesting.

mrc70

Exactly my thoughts Scott on Brazil.
I initiated a thread couple of months ago, not sure here or at M*, about investing in Latin America. Even though it is a known fact (Football WC), still it might help.

I have not invested so far in exclusive LA fund since I did not find a good one. I have access to only a few funds at TDA, one among them is Trow price LA fund, which I am not very keen on.

Aberdeen CEF LAQ looks somewhat interesting fund.

mrc70

Market Pundits are very funny. Just a few weeks ago when EM are tanking, they said they are riskly markets, etc. Now, with markets doing better for a week or two, we find articles on the virtues of investing in EM.

scott

Reply to @mrc70: I like Ambev (ABV) as a very "familiar"/broad appeal Brazil play that pays a nice dividend. Not a dull stock by any means, but probably about as boring a stock as you'll find in Brazil.

The Brazilian Real is also down considerably and if it did see some improvement, Brazilian investments will as well.

USD/BRL: http://finance.yahoo.com/echarts?s=USDBRL=X+Interactive#symbol=;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

Kenster1_GlobalValue

Yes I agree that getting into a Latin American fund is not for most people. But suppose it does rebound nicely between now and 5 years and you might be kicking yourself for not getting in but seriously - you might've had what 0.5% - 1.0% of your portfolio in such a fund? How much of a benefit would you really realize from the whole portfolio investment perspective.

You will have Latin American exposure from diversified EM equity and bond funds. In fact, many of the EM funds have had substantial exposure to Latin American bonds and they still do.

Even the Tweedy Browne team who don't venture into EM that much have started to add Banco Santander Brasil to their Global Value Fund and is a top 20 position.