Latin America ETFs: Commodities and domestic consumption boost LatAm equities

Oct 26th, 2011 | By | Category: Equities

Once associated with coups, financial crises and political instability, Latin America has transformed itself over the past 10 years to become an important engine of global economic growth.

Latin America ETFs - Commodities and domestic consumption boost LatAm equities

GDP growth this year is forecast to be 4.5% in Chile, 4.2% in Brazil (pictured), 4% in Argentina and 3.2% in Mexico.

Last year Latin American GDP grew by 5.7% and is forecast to grow by another 4% this year. The MSCI EM Latin America Index is up 115% over the past 3 years.

A commitment to orthodox fiscal and monetary policies from the region’s governments and central banks has created an environment conducive to domestic growth and investment, while the region’s bountiful natural resources have stimulated foreign direct investment and boosted government finances.

At the same time, companies in the region have worked hard to restructure balance sheets, reduce debt and focus on core skills, resulting in improved profitability and earnings.

The region’s economy is well balanced, with a flourishing middle class. Growing, youthful populations with burgeoning workforces are enhancing earning and spending power in the region, which in turn is driving domestic, consumption-led growth.

The region’s sovereign bond markets, whose characteristics are in stark contrast to those of their peers in the developed world, also offer huge appeal. The region has received more credit rating upgrades than any other.

Fiscal deficits as a percentage of GDP are in most cases lower than in the euro zone, US, UK and Japan. State coffers are also strong; Brazil has over US$350bn in foreign exchange reserves, while Mexico has over $135bn.

Little wonder, then, that GDP growth this year is forecast to be 4.5% in Chile, 4.2% in Brazil, 4% in Argentina and 3.2% in Mexico.

However, strong growth can create problems; authorities in Brazil are concerned that the economy is growing too fast and fuelling inflation.

Earlier this week, the International Monetary Fund (IMF) warned that, although the region was growing at a healthy pace, high commodity prices and external financing was pushing growth at a faster pace than some economies were prepared for. It warned that this was causing overheating in some areas.

But despite concerns of overheating, the region represents an exciting investment opportunity. Investors can gain equity exposure to Latin America via a number of individual country or regional ETFs. Below is a selection worthy of further investigation.

Europe domiciled (UCITS):

SPDR MSCI EM Latin America ETF

Amundi ETF MSCI Brazil 

EasyETF DJ Brazil 15

HSBC MSCI Mexico Capped ETF

Credit Suisse ETF (IE) on MSCI Chile

NYSE listed:

iShares MSCI Brazil Small Cap Index Fund

Global X FTSE Argentina 20 ETF

Global X FTSE Colombia 20 ETF

Global X FTSE Andean 40 ETF (Chile, Colombia, and Peru)

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