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SCMP Reporter

THE bad news for recent investors in Latin America is that the markets are bombed out, according to HSBC Asset Management director Terence Mahony.

   The good news was that increasing consumer demand in the markets, along with reforms and industrial investment, would boost economic performance and returns, Mr Mahony said.

   But when to take the plunge, and in which sectors to seek exposure, was still unclear.

   Over the past 12 months, Latin American markets have provided some of the bleakest returns among some dire performances from emerging markets.

   What were previously glamour stocks have quickly turned into the ugly ducklings of many portfolios.

   According to the IFC Investable Index, investors in emerging markets have seen their portfolio shrink by one-fifth so far this year, compared with 10 per cent in Europe and the Middle East and eight per cent in Asia.

   The immediate reason for the reversal of fortunes has been the aftershocks from the meltdown of the Mexican economy.

   This resulted in a 'tequila effect', rocking investor confidence both sides of the Pacific and sparking a flood of redemptions.

   Mr Mahony, who is also the chief investment officer for the global emerging markets, said: 'Latin American markets are bombed out, but there is some intrinsic longer-term value.'    He said there was plenty of time for investors to slowly rebuild their positions in Latin America. And Asia had been caught in the fall-out of the poor sentiment.

   But the falls have been lighter because the region's economic growth is stronger, current account deficits are lower, reserves are larger and capital flows more long term.

   'Fund managers have now drawn a clear line between Latin American and Asian markets,' Mr Mahony said.

   'But investor sentiment is like a huge pendulum. Once they have realised there is value in Latin America, what has happened recently will be forgotten.'    He believes the longer-term economic potential in Latin America will stem from industrial and infrastructure development fuelling consumer demand.

   This cycle would be complemented by a parallel increase in intra-regional trade.

   'But for many investors it will be a case of once bitten, twice shy,' Mr Mahony said. 'Now is a very good time to accumulate slowly, but we do not see people following in quickly.'    The Mexican crisis initially triggered a plunge in Latin America's stock markets.

   But more recently, economies such as Chile, Argentina and Brazil have begun to pull out of the dive and recoup losses.

   Mr Mahony advises investors considering the region to focus on fundamentals, diversify and be prepared for a bumpy road.



'Long-term value' in Latin America