Why is Latin America the Next Hot Investment?
What makes Latin America, an area rife with political uncertainty and economic concerns, such a hot investment space? It’s all about timing.
For real estate, we’re bullish on property types that are tied to the consumer — shopping centers, the hospitality sector — those kinds of areas. We’re also bullish on domestic transportation, airlines and then food and beverage. Fast casual didn’t really exist ten years ago, and now most major brands operate in Latin America. I’m also pretty bullish on consumer finance, but that’s mainly in Mexico.
TheStreet: We’ve seen some political instability in the region, but that’s calmed down recently. Are investors getting too comfortable here?
Anderson: I think investors have become increasingly optimistic as the Petrobras(PBR) corruption case has marched forward. In the last week, they’ve indicted Lula (former Brazilian president Luiz Inácio Lula da Silva), and they’ve arrested two of the most senior finance ministers under former president Dilma Roussef and Lula. The indication is that the criminal probe is not slowing down, and it’s expanding. I think investors like that, because corruption has been long a standing issue in Brazil, and bringing it to the public eye is constructive for the country, doing business and it shifts attention towards more pro-economy government.
TheStreet: How dependent is this region on natural resources like oil. If we see another drop in oil prices again, does that cause the instability to come back?
Anderson: I don’t think it will for the simple reason we’re seeing the economy in Brazil bottom without a robust commodity rally. This year we’re talking about decline of 3% in the economy, and next year, they’re talking about growth. Though these numbers are ugly, it’s the Brazilian economy in transition without the commodity benefit. Like China and other commodity-exporting countries, Brazil has the potential to grow the internal consumer. It requires fiscal reform, attracting foreign direct investment and we see all of those things taking place. If oil meanders in high $30 and $40 range and it remains somewhat volatile, it’s not something that will change the near and medium-term prospects for recovery in Brazil.
TheStreet: Tell me about the Latin America ETF, its holdings and what makes it a good investment.
Anderson: LARE has 61 components, mostly split 50-50 between Mexico and Brazil. It has some exposure to Chile and Argentina and will eventually include Colombia. When you talk to investors, they say the idea of doubling my money is great, but they can’t handle the volatility. The LARE has the lowest volatility among emerging market ETFs and it also provides great diversification. The EEM has a 90% correlation to the S&P 500, whereas the LARE has a 51% correlation to the S&P 500.
In Mexico, you might see asset prices pull back or meander for a bit, but here, you get the combination of the stability in Mexico and the upside of Brazil. It’s a nice way to increase income and get growth potential.