Investments  

Insight: Latin America

Insight: Latin America

Latin America has been one of the world’s most talked about investment areas in recent years. The region has been marked by tremendous growth and has been a firm investor favourite for more than a decade. But things are starting to dwindle, with many funds now massively underperforming.

Brazil

Brazil, in particular, has been held in high esteem as the largest economy in Central and South America and is one of the Bric countries (along with Russia, India and China). It is preparing to host the Olympics and Paralympics this year, which will boost tourism. But despite that, the country has been going through a tough few months.

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President Dilma Rousseff has been suspended for the course of her impeachment trial on charges of illegally manipulating government accounts. She has denied the charges, stating she has not done anything that was not already common practice in previous administrations. She has been suspended for 180 days while the trial goes on, and Brazil’s vice president, Michel Temer, is serving as interim president.

To make matters worse, Brazil’s stock market was one of the worst performers in 2015.

Venezuela

Venezuela has also been experiencing difficulties. Firstly, the IMF forecast at the start of the year that it expects the country’s consumer inflation rate to hit 720 per cent after it saw an estimated 275 per cent jump in 2015.

Additionally, its president, Nicolas Maduro, has threatened to seize closed factories and jail the owners. He has also introduced a nationwide state of emergency to “tend” to the country and to denounce any external and foreign “aggressions” against it. Thousands have signed a petition to remove Mr Maduro from office and activists have taken to the streets in protest.

Argentina

Meanwhile, Cristina Fernandez de Kirchner, the former president of Argentina, has been charged with defrauding the state. She is alleged to have manipulated the country’s central bank to sell dollars at an artificially low price before she left office. A judge in the trial has said the proceedings have cost the state about $5.2bn (£3.6bn).

Peru and Mexico

Peru also faces a challenging time as it seeks to avoid being downgraded to ‘frontier’ market status this year owing to a perceived shortage of investable companies.

Another major economy in the region is Mexico. Unlike many of its neighbours it has made a good start to 2016. Its GDP has expanded 2.7 per cent year-on-year based on the first quarter, and is up 0.8 per cent on the fourth quarter of 2015.

However, faced with so much uncertainty, the region as a whole does not appear a particularly safe place to invest in at the moment.

Table 1 provides a snapshot of fund performance in recent years. It illustrates the top 10 performing funds with more than 50 per cent exposure to Central and South American countries, according to FE data. The funds are arranged over five years and based on an initial £1,000 investment.

Unsurprisingly, funds across the continent have taken a hit when it comes to performance. Over five years, only one fund – the Pimco Emerging Markets Bond fund – would have produced a return on the initial investment, yielding £1,340 over the period. Investors in the next best fund – Stewart Investors Latin America – would have lost out, as the fund returned only £968 over the five years.