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Investing in South America: Where to look for Latin American profits

Posted March 9, 2008

"Given the interdependence of the North, Central and South American economies, a recession in United States could have a strong effect south of the border." — Laura Cadden
 

Baltimore — (TFN): This is taken from TFN’s Smart Trading Action Alert video with Juan Munoz, editor of ADRTraders.com.

Laura Cadden: With the attention of the Western financial press absorbed by the volatility in the U.S., European and Asian markets, little attention has been paid to South American markets. But given the interdependence of the North, Central and South American economies, a recession in the United States could have a strong effect south of the border.

My guest today is Juan Munoz, editor in chief of ADRTraders.com.  Juan, how would you characterize the interrelation of the North, Central and South American economies at this point?

Juan Munoz: Basically, there is no direct relation for all the countries. Different countries will react differently to the U.S. recession. Countries like Brazil, Colombia and even Panama have very strong GDPs this year, and they have been growing up and stabilizing their balance sheets.

The other group contains countries like Mexico or Venezuela. Venezuela will struggle because their dependency on oil prices is very high.

Click here to watch the financial video.

LC: Let’s talk about labor markets. Right now, the U.S. provides a lot of employment for lots of people from Central and South America. Wouldn’t a severe recession have a great impact on economies like Mexico?

JM: 2006 and 2007 were great, great years for Mexico. In 2007, it experienced a total of 3.8 percent GDP growth, which is pretty good. That tells me that Mexico’s dependence on the U.S. — even if it’s very connected with the U.S. market — is actually going down. 

Also, prices of oil are going up, so basically most of the income of this country is coming from oil revenues and remittances. They’re very high. Even during the last five years, continued growth of remittances was, like, 20 percent year by year. In 2007, it was a little lower, and I will predict that 2008 will not be that great because the U.S. economy is going slow. People will have less money to send it to Mexico.

LC: Considering the drop of the dollar, what long-term effect will this have?

JM: The dollar going down is actually very good for countries like Colombia, like Brazil. There was a very excellent revaluation of the real, which is the currency in Brazil. It’s around 20 percent of the total revaluation, which means that they have less debt. If they want to get new debt, it will be cheaper, and that is basically putting a strong country in terms of their balance sheet.

Colombia is other good example, with its 10 percent revaluation of their currency. For Colombian exporters it is a little difficult situation, but nobody can be a winner in this one. We have a stable balance sheet in the country when we have revenues coming from oil.

Of course, then there’s the other side of the coin. We have Argentina, which is very dependable in terms of exporting products to the United States, but they’re very much dependent of this variation of the currency.

LC: Let’s talk about Venezuela for a moment, with all the press about Hugo Chavez and his experimenting with nationalizing industries. Some people call it petro-communism. Should U.S. investors be concerned that this movement is going to catch on in Latin America?

JM: What Chavez is trying to establish is not a communist system. It is a socialist system. We have a very good example of Brazil. The president of Brazil was totally socialist, and is Brazil doing bad? No, it’s doing excellent. It’s basically balancing the powers, and that’s what Chavez is trying to do.

I’m not in favor of his policies, like everybody else. He just failed very badly trying to change part of the constitution which would have allowed presidents to renew and renew their mandate forever. Venezuelans like a fair economy and have a president who cares about the poor people.

Chavez’ problem is not his policy in general, but the problem is he’s focusing all of the revenue on the oil. He is spending most of his money in social investment, not infrastructure, which is taking Venezuela ten years back in terms of growing as an economy and as a center of business.

LC: Tell me what do you think an investor should do with the situation in South America?  Do you have ideas as to where to put your money?

JM: I currently recommend a company called SID, the ticker symbol SID. They specialize in mining. This company is a good example why companies in Brazil, the mining sector in Peru and Mexico, are a great opportunity to invest your money. Other sectors are very powerful. In the banking industry, they don’t have this problem that we have in the United States about the credit crunch. In Colombia, Chile, Argentina, they still lend money with responsibility.

In Latin America, it’s very difficult to get a credit card. To get a credit card you have to have a good income; at least a job. The banks in Brazil are doing very well because now the economy’s growing, and now the construction sector is booming.

LC: Thank you so much for bringing your knowledge to Smart Trading. To learn more about Juan’s information research service, go to   www.adrtraders.com. For Juan Munoz and TodaysFinancialNews.com, I’m Laura Cadden.

 

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Posted by Laura Cadden · Filed Under International Investing 

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