portfolio manager of Black-
Rock’s Latin America Trust,
agrees Brazilian stocks
are at attractive valuations
right now and within his
fund has a 20% overweight
to the country compared to
his benchmark, the MSCI
EMF Latin America Index.
In total, the country
accounts for between 80%
and 90% of his fund, which
he says is chiefly due to
the liquidity of the market
IMF real GDP figures
%
12
9
6
3
0
-3
’09 ’10
*Estimated. Source: IMF
Equity fund flows
$bn
5
2.5
0
-2.5
Sep ’11
Oct ’11
Nov ’11
-5
Asia ex Jap Brazil
Source: EPFR Global
’11*
BRIC
and the combination of
top-down and bottom-up
investment stories.
Landers says in the past
decade Brazil has come a
long way and is in a more
stable political and economic
position.
He says the distribution
in wealth has seen
“everyone in Brazil, from
the richest to the poorest,
doing better than they
were ten years ago”.
President da Silva left
office last year with record
high approval ratings and
ensured his successor,
President Dilma Rousseff,
had a solid footing from
which to start her first term.
Landers also thinks the
Central Bank of Brazil is
doing a better job than
historically, with recent
trends showing inflation
has peaked, allowing the
China
’12*
GEM
’13*
Brazil
China
World
Lat Am
start of a loosening cycle.
Twice in 2011 the Central
Bank opted to cut interest
rates and unlike many
developed markets, it has
the room to cut them further
if an economic downturn
necessitates.
Collings believes Brazil
is well insulated from the
political and fiscal problems
in the eurozone and
sees it as less reliant on the
southern states of the US,
unlike Mexico. As a commodity-rich
country, however,
it could come under
pressure from a slowdown
in China, much like Latin
America as a whole.
Jonathan Asante, head
of global emerging markets
at First State and manager
of the firm’s GEM
Leaders and Latin America
funds, says: “Latin America
remains exposed to a
likely slowdown in China.
We continue to own reasonably
valued well-run
companies evenly spread
across the region and find
few alternative ones over
and above those that meet
our criteria.”
l Lack of targets
His co-manager on the First
State GEM Leaders Fund,
Glen Finegan, has previously
raised concerns with
Portfolio Adviser about the
limited number of “genuine
investment targets” in Brazil
because he feels corporate
governance improvements
still have a long way to go.
He also strips out any SEOs
when narrowing his investment
universe because he
believes they are not run
in the interests of minority
shareholders.
As a high beta market,
he said returns from Brazilian
companies would
have to be considerable to
make up for the risk taken
in investing in them. From
a top-down perspective,
he admitted the market
could be cheap but, from
a bottom-up, stock-picker’s
view he thinks highquality
firms still look
expensive.
Another fan of companies
outside Brazil is
Mubashira Bukhari, an
assistant investment manager
in Aberdeen Asset
Management’s GEM team.
She said valuations in 2011
became more reasonable
in Mexico and Columbia,
and the relaxation of capital
controls in Columbia
and Peru have helped
their investment case. In
addition, if Chile was not
so penetrated by pension
funds which drive prices
up, she said it would be a
good place to invest.
Over the medium term,
she thinks Latin American
companies are more attractive
than Asia because
their economies are largely
driven by domestic
demand and have little
dependence on exports.
Brazil, for example, derives
only 10% of its GDP from
exports, so the impact of
a global slowdown should
be less severe.
“We will not be hindered
by the fact we
already have positions
[in the country] or by the
macro environment,” she
says. “If we believe in
companies, we will enter a
position in them.”
China represents a relatively
small amount of
the portfolio not because
of macro concerns but
because it is hard to find
companies free from state
intervention or corruption,
she explains.
l Trend to companies
As global markets become
more correlated and
the idea of decoupling
becomes virtually implausible,
picking a region based
on macro assumptions
seems to be becoming
less fashionable. Instead,
a focus on the strength of
companies and how they
are placed for the rocky
ride in the next few years
is the approach du jour.
Whether they are based
in Latin America or Asia
is less important, as the
general lack of regard for
benchmarks shows.
EQUITIES LATIN AMERICA
We will not be
hindered by the
fact we already
have positions [in
a country] or by the
macro environment.
If we believe in
companies, we
will enter a position
in them
JANUARY 2012 [www.portfolio-adviser.com] PORTFOLIO ADVISER
“
SUMMARY
As global markets become
more correlated, investors
should look through the
macro and focus on corporate
strength irrespective of where
stocks are listed.
Where the companies
are based is of secondary
importance – because China
and Brazil are dominant
in their regions does not
make them the number
one investment choice.
From a top-down view, markets
could be viewed as cheap, but
bottom-up research could show
a very different story.
”
Mubashira Bukhari, assistant
investment manager, global
emerging markets, Aberdeen
Asset Management
37
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