Emerging Markets are expected to be increasingly large
contributors to the global growth in the coming years. Usually
China and India come to mind when investors think about emerging
markets investing, but investors should not ignore Latin America,
which has some of most dynamic growing economies.
Most Latin American countries are rich in natural resources and
have positive demographics with a younger population and rising
middle class. With improved economic policies and booming natural
resources, the region has witnessed strong surge in foreign direct
investments in the past decade. As a result of increase in wealth,
domestic demand and consumption is rising in most countries. Read:
Latin America ETFs, Beyond Brazil.
According to IMF, the prospects for Latin America and the
Caribbean remain promising, with economic growth expected to pick
up pace in 2013, after a slight slowdown to 3.7% in 2012 (from 4.5%
in 2011).
However the investors should remember that since most countries
in the region are commodity exporters, their growth rates are
driven by the global economic environment, in particular the growth
in China and the Chinese demand for commodities, which has come
down recently. But the long term potential for the region remains
very attractive.
Among the countries in the region, we think Peru, Colombia and
Brazil offer the best opportunities to the investors. Argentina has
been in news recently due to shocking plans to takeover YPF, its
largest oil and gas company. With the populist policies being
followed by the Government to draw the attention away from the
serious economic problems in the country, most investors will
prefer to stay away from Argentina. (Read: Argentina ETF In Focus
On Nationalization Proposal).
Below, we take a look at the country ETFs with the highest
growth potential in Latin America.
Peru
Peruvian economy has been growing at an average rate of 6.4% per
year since 2002. Last year the growth was close to 7% after 8.8%
growth in 2010, partly due to strong private investments. Peru is
one of the top producers of gold and silver in the world. In
addition to precious metals, its main exports are copper, zinc,
textiles, and fish; its major trade partners are the U.S., China,
Brazil, and Chile. Despite strong performance, the economy remains
subject to fluctuations in global economic trends due to its large
dependence on mineral and metals exports. The central bank has kept
the key rate unchanged at 4.25% since May last year as “inflation
expectations have remained within its target range and pace of
economic growth has remained close to potential”. Per IMF, the
economy will grow at 5.5% and 6.0% in 2012 and 2013
respectively.
MSCI All Peru Capped Index Fund
EPU.
Launched in June 2009, this fund tracks MSCI All Peru Capped
Index. The ETF currently has $541.6 million in AUM and 28 holdings.
The fund has returned an impressive 26.5% since inception (as of
March 31, 2012) and 17.8% during last quarter. It charges 0.59% per
year in operating expenses to the investors. The fund has highest
exposure to materials (54%), followed by financials (24%) and
consumer staples (8%).
Colombia
Due to surge in oil output and sound economic policies,
Colombian economy has had GDP growth exceeding 4% annually since
2004, except during the global financial crisis in 2008 and 2009,
versus an average growth rate of 2.3% during 1994-2003. The economy
grew at 5.9% in 2011 and is projected to grow at 4.7% and 4.4% in
2011 and 2012 respectively (per IMF).
The country is enjoying a huge oil boom, primarily due to
critical reforms to its oil sector, such as partial privatization
of state-owned oil company and allowing foreign companies to bid
for licenses without having to partner with the state oil company.
Crude production has almost doubled over the past few years.
Growing consumer demand in the country caused rise in inflation
to well above the midpoint of the central bank's target range
(though among the lowest in the region), leading to rate hikes,
last year and earlier this year. However as the inflationary
pressures have started stabilizing, the central bank left rates on
hold at 5.25%, in its March meeting. (Read: Is ARGT A Better Latin
America ETF Pick?)
Among the negatives-unemployment rate at 10.8% is among the
highest in the region. Apart from high unemployment, poor
infrastructure, income inequality and drug trafficking remain the
main challenges for the country.
Global X FTSE Colombia 20 ETF, GXG.
Designed to track the FTSE Colombia 20T Index, GXG made its
debut in February 2009. The index is a market capitalization
weighted index of 20 most liquid stocks in the Colombian market.
The fund charges 78 basis points annually and has returned almost
200% to the investors since inception. Currently the fund has
$168.9 is net assets and 21 holdings. In terms of industry
breakdown, material stocks have 26% weight, followed by financial
services (21%) and energy (14%).
Brazil
IMF expects the economy to grow at 3.0% and 4.1% in 2011 and
2012 respectively, while the inflation is expected to come down.
Slowdown in China is a matter of some concern, but the domestic
consumption is growing and will be a significant driver of economic
growth. With a low unemployment rate (6.0%), a rising middle class
and generous pay increases (wages are indexed to inflation and GDP
growth), the domestic demand has continued to grow.
The central bank cut the key rate last week to 9%; it’s lowest
in two years, in order to stimulate growth which fell to 2.7% in
2011, from 7.5% in the previous year. With inflation subdued at
around 5%, the central bank now has more flexibility on the
monetary policy front.
iShares MSCI Brazil Index Fund, EWZ.
The ETF tracks MSCI Brazil Index, which is comprised of publicly
traded securities in the Brazilian market. The fund has $8.71
billion in assets (making it the biggest Latin American equities
ETF) and holds 81 securities. In terms of sector weights,
financials (23%) and materials (21%) occupy the top spots, followed
by energy (19%).
The fund -started in July 2000, has returned 13.7% since
inception. During the first quarter of 2012, the fund returned
13.4%, after a terrible performance during 2011, when it lost
22.3%. It has an operating expense of 0.59% per year.
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iShares MSCI Brazil ETF (AMEX:EWZ)
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De May 2024 a Jun 2024
iShares MSCI Brazil ETF (AMEX:EWZ)
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De Jun 2023 a Jun 2024
