Historically, Latin America never left the economic shadow of the US, but times have changed and so has Latin American business opportunities says Rudy Martin of Latin Stock Investing.
With the underpinnings of Latin America’s overall economy largely dependent on its exports, an investment strategy for the region is largely dependent on conditions at its trading partners.
Currently, the United States is mired in apoplexy over the looming “fiscal cliff.” Europe is still slogging through the three-year-old fiscal debt crisis, and the direction of the Chinese economy looms as a huge question mark over Asia. The safest direction for investors in Latin American securities is to identify signs of resolution of these issues before making any major new commitments.
Currently, the most probable breakthrough is the Chinese economy. With Xi Jinping taking the helm at the 18th Communist Party Congress this month, announcements of new economic stimulus measures or other economic initiatives is likely in the very near future.
Politics aside, signs of a reawakening of China’s economy have recently been emerging. Recent examples:
- China's October exports rose 11.6% from a year earlier, faster than September's 9.9% increase
- Industrial production in the nation in October came in 9.2% higher than a year earlier
- For the year to date, total fixed-asset investments in urban areas of China areas were 20.7% higher than the same period a year ago
- October retail sales were 14.5% higher than the same month a year ago, following a 14.2% year-on-year gain a month earlier
- Inflationary pressures could be moderating, with China’s consumer price index in October only 1.7% higher than the same month a year ago. This could allow for an easing of monetary policy
While a pickup in internal demand from its billion citizens would provide a big boost to China’s economy, a pickup in the US and European economies would really reignite the nation’s enormous industrial engine.
A likely beneficiary of a reawakening of Chinese industry would be Southern Copper (SCCO). Although headquartered in the United States, SCCO produces the crucial industrial metals copper, molybdenum, zinc, and silver in Peru and Mexico, in addition to exploration and operations in Argentina, Chile, and Ecuador.
Brazilian mining giant Vale (VALE) would also likely benefit by providing iron ore and possibly other materials to Chinese industry in an expansion of its manufacturing sector. Currently not in either of the LSI Model Stock Portfolios, it would be a prime candidate for inclusion once conditions warrant.