South of the Border
Latin American stocks are holding up better than most other regions during the world equity market downturn. The iShares S&P Latin American 40 exchange-traded fund (ILF) has a year-to-date gain of 11.6% through June 30, while stocks in most regions of the world are sitting on year-to-date losses.
Does this mean Latin America has some catching up to do on the downside (a bearish sign)? Or does it mean Latin America is likely to recover fastest when world markets turn up again (a bullish sign)?
Alec Young, S&P's international equity strategist, is very much in the bull camp on Latin America. "We see Latin America maintaining its lead through the rest of this year, helped by its 50% weighting in energy and materials," he explains. "We are still very bullish on commodities."
Young believes Latin America's strong year-to-date performance has been driven by a relatively benign macroeconomic environment, increasing consumption, strong earnings growth momentum, and low relative valuations. Global Insight estimates Latin American real GDP growth of 4.6% in 2008, with Brazil, the region's largest economy, forecast to post growth of 5.1%.
Additionally, Mexico is weathering the U.S. slowdown relatively well, in S&P's view, and is expected to post 2.9% real GDP growth in 2008.
S&P equity analysts recommend three Latin America-based stocks: Desarrolladora Homex (HXM), Net Servicos de Comunicacao (NETC) and Petroleo Brasileiro (PBR).