Latin American equities have been on a rollercoaster ride year-to-date led by currency volatility and rotations in sentiment. Nick Cowley, Global Emerging Markets Equities fund manager at Henderson Global Investors, recaps on the drivers and looks at where the opportunities lie.
Brazilian equities have been particularly volatile, starting the year on a downward trend before a sharp turn in sentiment leading to the rally from March. Nick looks at the likelihood of further rises on the “hope” that the October elections will lead to a more pro-business stance. This could come in the form of a change in president, with polls showing an increase in popularity of the opposition, or pressure leading current incumbent, Dilma Rousseff, to shift her stance. While the forthcoming results are difficult to forecast at this stage, the polls have buoyed equity markets with companies, such as Petrobras, that have previously benefitted from positive shifts in government policy leading the way. A similar move occurred in India recently with markets rallying ahead of the election. The Henderson Global Emerging Markets team has been adding to its Brazil exposure in recent months.
In Mexico, the journey has been slightly less volatile, with earnings trends continuing last year’s theme of disappointment. However, progress is being made at a political level, underpinning the longer term growth story, and Nick expects the pick-up in government spending to lend support in the near term. Elsewhere, currency devaluation in Argentina and Venezuela has rightly caused investors’ concern.
Overall, sentiment towards Latin American equities has generally been improving off a low base and Nick believes this can continue. He favours companies able to deliver secular growth as a result of the adoption of products and services to levels moving towards those seen in developed markets.
To view Nicholas Cowley’s webcast, please click on the video.