Latin American Shopping List

02/04/2016 10:00 am EST


Tony Daltorio

Editor, Investors Alley Premium Digest

Latin America, as a whole, will be in a recession for the second consecutive year in 2016. The International Monetary Fund forecasts an economic contraction this year of 0.3%, cautions Tony Daltorio, editor of Daily Profit.

That is the first time that's happened since the recession in 1982 and 1983. That was the start of the region's so-called "lost decade."

But the overall figure from the IMF masks the truth. Latin America really is a tale of two groups of countries. The first group is the socialist disaster countries, Venezuela and Brazil. Both countries are to be avoided by investors.

Now to the good news. Chile, Colombia, and Peru are forecast to enjoy economic growth this year of between 2.5% and 3.5%. These three nations, together with Mexico, form the Pacific Alliance trading block.

These countries are all exposed to the collapse in commodity markets. But they are holding up thanks to pro-business reforms previously instituted.

The contrast between the Pacific Alliance and others in the region is sharp. Between 2010 and 2015 these countries had 3.6% lower inflation than the average for Latin America. They also grew gross domestic product at a 1.5% higher rate and invested 2.5% more GDP.

Another difference is that the Pacific Alliance nations have fast-growing domestic pension fund industries that continue to amass money for investment.

Our neighbor to the south, Mexico, is another good story. It is expected to show 2.7% GDP growth in 2016. Its ties to the US economy are a boost, as are labor costs rivaling China. At work too are genuine reforms undertaken by Mexico's leader, President Enrique Peña Nieto.

There is also the turnaround story being engineered by Argentina's new president, Mauricio Macri. He is a believer in free markets and is re-engaging with the world's financial system.

All five of these countries are well worth a look by investors. But finding a good way to invest in these countries for US-based investors is tough. Most ETFs include only a small sampling of stocks and the few mutual funds that cover the region focus mostly on large-cap stocks in Brazil.

But there are some high-quality Latin American stocks that are traded on US exchanges. Here are a few suggestions: In Argentina, the banks look OK. These include: Banco Macro (BMA), BBVA Banco Frances (BFR), and Grupo Financiero Galicia (GGAL).

In Chile, one can consider beverage company Compania Cervecerias Unidas (CCU) and retailer Cencosud (CNCO). In Colombia, financial services company Grupo Aval Acciones y Valores (AVAL) might be worth a look.

In Peru, another financial services firm—Credicorp (BAP)—is interesting. One word of caution regarding Peru. It may be downgraded from an emerging to a frontier market this year. Finally, in Mexico, I like beverage seller Fomentos (FMX).

The following airport stocks are also worth considering: Grupo Aeroportuario del Centro Norte (OMAB), Grupo Aeroportuario Pacifico (PAC), and Grupo Aeroportuario del Sureste (ASR).

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