Urban Larson, manager of the Baring Latin America Fund, believes that Latin-American earnings will outpace other emerging regions in 2005 and 2006.
After a rocky October when many analysts felt that growth in the region was peaking, most Latin stock markets have rebounded sharply from the correction levels, and their economies seem on track for sustainable growth.
Working as a young analyst in Mexico for a string of banks like BBV-Probursa and Salomon Brothers before joining Baring Asset Management, Mr Larson learnt not to give up on these rather volatile markets easily. 'I lived in Mexico for six years after graduating from business school. There was a lot going on there at that time, such as the North American Free Trade Agreement, and I learned if you stick it out there, you will come out having had some formative experiences.'
In fact, the free trade agreements that many of the Latin American countries enjoy with the rest of the world will be a big catalyst in their future growth. 'Mexico has a free trade agreement with the European Union, Chile etcetera; Brazil has one with the EU; while Chile has such agreements with North America, the EU and other markets,' says Mr Larson.
'What many people don't know is that these countries are big exporters. Mexico supplies cars, white goods and machines while Brazil exports metals and minerals, meat and soya bean. In fact, the entire South American region is a large exporter of commodities such as iron ore and soya bean.'
While global commodity prices appear to have peaked, that level could be sustained if the growth stays strong, which would in turn benefit the Latin region.
Valuations remain cheap, with Brazil still at a significant discount to other emerging markets. The Brazilian valuations have still not recovered from the 2002 election scare and a busy electoral calendar in 2006 remains a key risk to the region as elections often lead to volatility in these markets, says Mr Larson. Therefore, his strategy is to focus on domestic growth across the region. 'We are overweight in Brazil and Mexico and also overweight in consumer stocks and other domestic growth plays such as banks, beverages, electricity generation, home building, retail and consumer plays,' he adds.
