Investment opportunities in Latin America

Latin American stock markets were among the first that erased the losses from financial meltdowns. Colombia is inexorably rising. Chile, measured by MSCI index, ranges on the border of the historical highs, and INTER10 index is already behind the highs from last year. Peru, Brazil and Mexico has also caught most of the losses and gradually nearing its peak around the middle of last year. Only Argentina is still well behind.

While investing in European and US shares brought negative return in past 10 years, investments in Brazilian and other Latin American returned around 15% positive p.a.. Buy & Hold strategy is still working and always will work. However, you need to buy cheap shares undervalued, such as ten years ago were precisely those in Latin America.

Chart: Relative comparison of indices MSCI Latin America (yellow), MSCI Emerging Markets (orange) and MSCI World (green) in five-year period


Economic and investment outlook

Long-term potential of Latin America is unquestionable. Large stocks of commodities, cheap labor and progressive demographic composition of the population are three main pillars of future economic prosperity. Sustainable economic growth to raise people's living standards must be based on a sound business environment and efficient management of public finances. These are areas in which Latin America as a region has still space for improvement.

Exception is Chile, where the market has been considerably liberalized and public finances consolidated. Chile was one of the few countries in the world last year by trading with a positive balance of the state budget and creating a reserve for "rainy day". These have arrived with the fall of copper prices in the second half of last year. Chilean government, however, could afford to support the domestic economy stimulus package amounting to nearly ten billion dollars and turned the recession.

Short-term, Latin American equity markets seem overheated and there is possibility of a significant correction, moreover, the risk of equities around the world. In the medium may have significant problems Mexico and Argentina. Mexico due to high depending on demand from the United States, Argentina, due to very poor state of public finances and lower efficiency of Argentina's economy in comparison with neighboring countries.
The best long-term outlook remains for Brazil. In the medium term there could be a particularly attractive building industry and everything connected with it. Unlike Europe, where the abundance of flats, Brazil faces a shortage of flats, several million people live in slums. You need to Brazil in the coming years to invest huge money into infrastructure and the upgrading and construction of stadiums. In 2014, there held the World Cup and two years later, the Summer Olympic Games. And therefore Brazilian market can be among the best performing in the horizon 4-6 years.