In May, Venezuela’s GDP figures revealed an economy that had shrunk almost 6% year-on-year. Analysts blamed a combination of inefficient state monopolies, excessive government interference, and rampant corruption.
Yet while the figures were bad news for most Venezuelans, much of the rest of the region has changed for the better.
Other countries in the region have allowed private firms to enter sectors that were once dominated by state-owned monopolies or opaque, family-run firms. And while even the most progressive economies, such as Brazil, are not without problems, in general economies across Latin America have become more efficient during the last decade. The result is that the region can increasingly harvest the benefits of its considerable natural resources, large untapped domestic markets, favourable demographics, and educated workforces.
“Latin America learned its lessons from the past”, says Gavin Lumsden on Citywire. Many Latin American countries have worked hard to keep inflation low and introduce conservative banking practices. The region emerged from the recent crisis with less debt than developed economies such as the US and EU.
There are still problems. Mexico is riven by growing unrest and violence. Ecuador, Bolivia and Argentina’s governments seem intent on creating state bodies that distort the markets. But these are just typical emerging-market risks. Latin America also compares favourably to other emerging markets. Aberdeen Investment says its equity markets have delivered annualised total returns of 20.9% over the last five years.
Indeed, the MSCI Emerging Markets Latin America Index has outperformed the MSCI Emerging Markets and MSCI Emerging Markets Asia indices over that period. And yet the region isn’t expensive. The MSCI EM Latin America Index is on a p/e ratio of 15.86, making it marginally cheaper than the MSCI EM Asia on 16.07, according to Bloomberg. What’s more, Latin America’s multiple is still lower than its pre-crisis highs and in line with a five-year average that has ranged between 13.8 and 17. But these issues shouldn’t deter investors.
The soon-to-launch Aberdeen Latin American Income fund looks an interesting way in. Managers Devan Kaloo and Brett Diment have been given freedom to invest in any country or sector. The investment trust aims to pay an income of 4.25%, and invests in sovereign bonds as well as shares. We’d wait until launch to see how it performs for a while. But if you can’t wait, call 0500-004000 for more details.