There was a point during this summer’s football World Cup in Brazil at which it seemed that Latin America would steal the show. Four South American teams made the quarter finals and others shone earlier on in the tournament as several of the old world Europeans stumbled.
But the dream soon faded. The host side’s seemingly inexorable march to glory ended in brutal fashion at the semi-final stage, where it was thrashed 7-1 by a German side that went on to beat Argentina in the final.
And the dream may have faded off the pitch too, for now at least. A decade ago Brazil – like its fellow Brics constituents Russia, India and China – was an emerging economic powerhouse, fuelled by favourable demographics and the China-driven commodities boom.
Latin America had until then been considered too volatile for private investors, but the fund launches started coming – with Brazil typically the heaviest weighting – and global and emerging markets funds also increasing their exposure to the region.
In the decade to January 2011 the MSCI EM Latin America index soared by more than 550 per cent, compared with a 317 per cent rise in the MSCI EM index over the same period.
Most Latin America funds in the IMA specialist sector were launched during that time, by fund houses including Aberdeen (2011), Neptune (2007), Fidelity (2006) and First State (2009), while BNY Mellon (2007) and JP Morgan (2009) both launched Brazilian equity funds.
Since then, however, investors have been given a reminder that Latin America remains a high-risk play.
In 2011 the EM Latin America index plunged by almost 20 per cent and a single digit resurgence in 2012 was followed by a 13.15 per cent dip last year. Returns have picked up gradually over the past few months as investors have begun to regain confidence in the wider emerging markets story.
Emerging leaders
“The Latin American equity market has been the best performing region during the renewed interest in emerging markets that commenced in March of this year,” says Will Landers, manager of the BlackRock Latin American investment trust and the BlackRock Global Funds Latin America unit trust/Oeic.
“This stemmed from a combination of Mexico completing the legislation associated with President Peña Nieto’s reform agenda and the prospect of change in economic policies following Brazil’s elections in October.”
But with the IMF cutting its 2015 GDP growth forecast for the region from 2.9 to 2.6 per cent in July the improvement may be short-lived. It cited misgivings around weak investment and reduced demand for exports from several key Latin American markets, including Peru and Brazil.
