The region is picking up speed economically. Investors can rely on their catching-up potential with a broadly diversified ETF. By Jörg Billina, Euro am Sonntag
Latin America has been hard hit by Corona: Over 40 million people were infected in July. The vaccination rate is slow, in Mexico 19 percent, in Argentina just 15 percent of the population are fully vaccinated. Inadequate health crisis management and high unemployment figures provoke protests – especially in Colombia and Peru. In both countries, 15 percent of the population is unemployed.
In Brazil, too, people are driven to the streets. They demonstrate against Jair Bolsonaro. The President downplays the dangers posed by Corona. According to a survey by the Datafolha Institute in May, 51 percent of those questioned were of the opinion that Bolsonaro did not make good politics. Dissatisfaction with the President’s administration has never been so high.
Nevertheless, there is no sign of panic among investors. On the contrary. Knowing well how susceptible to fluctuations in Latin America’s stock markets are, the willingness to take risks is increasing, not least due to the significant rise in commodity prices. In addition to agricultural products, Latin America mainly exports oil, Iron ore and copper. The manufacturing industry is also gaining momentum. Foreign investors therefore suspect there is potential to catch up: While the MSCI World has increased by around 15 percent since the beginning of the year, the MSCI EM Latin America has so far only increased eight percent.
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The Amundi MSCI EM Latam ETF tracks the index synthetically. It contains 66 percent Brazilian stocks and 22 percent Mexican stocks, the rest is in companies from Colombia, Chile, Peru and Argentina. Companies such as the raw materials giant Vale, the oil company Petrobras and the Itau Unibanco bank from Brazil are weighted high. The top ten positions also include Mexican stocks such as the telecommunications group America Móvil and Walmart de Mexico
Courageous managers
In addition to Colombian stocks, Brazilian stocks in particular were sought after in June. According to the “Rio Times”, foreign investors invested over $ 9.6 billion. In the same month, the Bovespa index gained almost five percent, outperforming the MSCI World and MSCI Emerging Markets. In July, however, Brazil’s stock market barometer dropped three percent again. Courageous investors are still betting that the recovery in Latin America’s largest economy will continue and that this will be reflected in rising prices. Despite the pandemic, gross domestic product increased by 1.2 percent in the first quarter of this year compared to the previous quarter.
Brazil’s entrepreneurs are also taking courage again. According to Germany Trade & Invest, capital investments in the first quarter of 2021 were 17 percent higher than in the same quarter of the previous year. In view of the positive developments, Brazil’s Minister of Economic Affairs, Paulo Guedes, recently raised the growth forecast for the full year from 3.5 to five to 5.5 percent.
Course fantasies are also sparked by Guedes’ tax reform plans. According to this, around 30 million employees are to be relieved from January 2022. That should encourage consumption. Corporate taxes are expected to drop from the current 15 percent to 12.5 percent and in 2023 to ten percent. However, capital gains tax will be increased on distributed profits.
Driving US upswing
As in Brazil, after a slump in growth of over eight percent last year, Mexico’s economic prospects are brightening again. The International Monetary Fund expects total economic output to grow by 6.3 percent. In the coming year, the IMF is forecasting an increase of over four percent. Mexico is benefiting in particular from the multi-billion dollar economic stimulus program in its northern neighbor. In the first five months of the current year, exports to the US increased by 29 percent compared to the same period last year.
Consumer confidence is also gradually picking up again. However, prices are also rising. The inflation rate could climb to six percent in the course of the year. That is well above the target value of the Mexican central bank. It cannot be ruled out that the monetary authorities will raise interest rates in August.
Amundi MSCI Emerging Markets Latin America: The ETF has grown by around eight percent since the beginning of the year. Heavy weight in Brazilian and Mexican stocks. Commodity companies and financial stocks are prominently represented. Synthetic replication of the index.
