US ‘saga’ deals blow to Latin America trust

The “saga” surrounding US monetary policy and slowing growth in China contributed to losses suffered by Aberdeen’s Latin American Income trust, according to its board.

Speaking in its annual results published last month, the board said Latin American stockmarkets had fallen in the year to August 31 thanks in part to the “quantitative easing saga” that had played out in the US.

The Federal Reserve’s chairman Ben Bernanke had readied markets for the potential reduction of its $85bn (£52.4bn) monthly asset purchases, which make up its quantitative easing programme, but in its September meeting decided not alter the policy.

Article continues after advert

“Emerging markets were initially supported by the abundant liquidity caused by ultra-loose fiscal and monetary policy in the EU, US and Japan,” chairman Richard Prosser said.

“However, the US Federal Reserve’s indication that it might scale back its asset purchase programme triggered a sharp global sell-off. Latin America was among the regions hardest hit. Regional currencies and bond markets were similarly affected.

“Also weighing on sentiment was decelerating growth in China, a key destination for the region’s commodity exports, along with concerns over the possibility of US military intervention in Syria, which triggered a spike in oil prices.”

Mr Prosser said economic data also disappointed in the region, with full-year GDP forecasts “being downgraded across the board”.

“In Brazil, government intervention in some sectors of the economy failed to spur growth,” he said.

“The Chinese slowdown weighed on commodity exporters, including Chile and Peru, the region’s two major copper producers. In contrast, Mexico grappled with weaker government spending on infrastructure, as well as a manufacturing sector dragged down by its reliance on the US economy.”

The trust produced a share price total loss of 4.7 per cent in the year to August 31, the results said, which was less than the 7 per cent loss that was produced by its composite MSCI EM Latin America 10/40 index/JP Morgan GBI-EM Global Diversified index (Latin America carve out) (sterling adjusted) benchmark.

The trust, which has fixed income and equity holdings, is run by Aberdeen’s emerging markets equity team and its emerging market debt team.