Investing in the Latin America 35 ADR Index

Posted March 1, 2008

"If we look at the Latin America 35 ADR index, it is evident that these companies have performed above average for the region and for the sectors they represent, including mining, oil and gas, telecommunications, banking and others. "

– Juan Muñoz, ADRTraders.com

Baltimore – (TFN): The following was taken from this week's Market Insights with Krista Das featuring Juan Muñoz, editor of ADRTraders.com. Watch this video.

Krista Das: Juan, Another exhausting week for Wall Street could be in store for investors, even as some see value among the wreckage wrought so far this year. Anxious investors remain jumpy over prospects for the economy.

What is your opinion and where should we put our money?

Juan Muñoz: Krista, Volatility is not news in the stock market. I have been following local and International markets for more than 10 years and my recommendation always is: Invest in Latin American markets. Always include stocks or funds in your portfolio focusing on this region. During the last ten years many of the Latin American indexes have been outperforming other regions. And YES, many people have said that if the US economy catches a cold, Latin America will get pneumonia, but that is just a generalization.

If we look at the Latin America 35 ADR index, it is evident that these companies have performed above average for the region and for the sectors they represent, including mining, oil and gas, telecommunications, banking and others.
During the last year, this Index increased by 75% from 275 points to almost 450.

Krista Das: But, people will be more reluctant to invest outside of the country in a crisis situation.

Juan Muñoz: Actually taking some money out of the US is an excellent way of distributing your risk among other currencies and other economies.

Let me give you some excellent examples of how it’s a great strategy now to consider including ADRs of companies located in Latin America or companies doing business heavily in Latin America in your investment portfolio.

Let’s start with Companhia Siderurgica Nacional ticker symbol (SID). This company is engaged in the manufacture, sale and export of steel and steel products. It is a totally integrated company, whose operations include mining, logistics, steelmaking and power generation. SID has flat steel production costs that are among the lowest in the world. It is also Brazil’s sole producer of tin-plate and retains more than 50% of the local galvanized steel market. In general, companies in the mining sector have been growing tremendously during the last two years. Through its subsidiaries, SID is also engaged in railroad transportation and electric power generation and distribution. The stock has been climbing during the last two years from US$30 to US$100.7 last month, approximately a 330% profit.

Of course this doesn’t happen from one day to another. We have been following the mining sector in Latin America for a while and together with Australia and BHP (Billiton) companies in this sector offer some of the best investments opportunities. I said this last year and will continue to do so this year.

SID Net revenue amounted to R$ 3.0 billion in the 3Q07, 14% up compared to the 3Q06, and R$ 8.4 billion in the first nine months, also a new period record and a year-on-year improvement of 30%; EBITDA stood at R$ 1.3 billion in the 3Q07. The consolidated 3Q07 EBITDA margin came to 44%. This is very significant and makes it one of the most efficient mining companies in Latin America.

Rather watch the financial video? Click here.

Krista Das: You mentioned that Latin American companies are not your only focus. What other types of ADRs are you following?

Juan Muñoz: Well, there’s a Canadian mining company, which is heavily invested in Latin America that I am also following. I am talking about Southern Copper symbol (PCU). This company also had an appreciation of 170% over the last two years and it is part of our recommendations. PCU is the world's largest publicly traded copper mining company and the world's fifth largest copper mining company. Also, they are the third largest copper smelting operation and copper refining company. (PCU) is majority-owned, by Grupo Mexico who owns approximately 75.1% of their capital stock. Sales for 2007 reached a historic high of $6 billion, an increase of 11.5% over 2006 EBITDA also increased to $3.7 million, equivalent to 62% of net sales.

Krista Das: Would you continue investing in mining?

Juan Muñoz: Heavy demand in emerging markets such as China has tightened steel supplies and pushed up prices for suppliers worldwide. Hot-rolled coil sold at $670 a ton in Jan, was up from $550 last year.
Even if we have a strong recesion in the US, steel in other countries will continue to be in demand for new construction. Continued strong global economic activity and exceptional inventory controls in the U.S. will maintain a strong demand for steel.

Krista Das: Thank you very much for your time and I hope you’ll visit us again with more tips on international stock markets.

Juan Muñoz: Anytime, Krista.

Krista Das: If you would like to learn more from Juan, check out his trading research publication ADR Traders by clicking on this screen or go to Today’s Financial News dot com. That’s all for this week’s show. Until next time, here’s to great profits from Smart Investing.

Juan Muñoz is the Editor in Chief of a financial newsletter called ADRTraders.com.

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