Investors Flock to Latin America As Region's Economies Shape Up
LATIN America is a region facing many economic and political challenges. For example, Mexico is in the throws of a contentious election, Brazil is fighting stubborn high inflation, and the new Venezuelan government is struggling to give foreign investors greater access to the nation's once-off limits oil and industrial sectors.
Still, many Wall Street experts now view the region as one of the most promising ``emerging markets'' of the mid-1990s. ``We see this as an excellent time to be acquiring shares in Latin America,'' says C. Thomas Tull, chief operating officer and a principal with Gulfstream Global Investors Ltd.
Gulfstream, based in Dallas, has about $100 million in assets under management.
Mr. Tull, who frequently travels to nations south of the Rio Grande River, sees Latin America, along with the Pacific Basin, (excluding Japan), and eastern Europe as providing the ``engines of growth of the future world economy.''
Latin America's financial promise, he says, is threefold: a rising population which will increase consumer spending; massive capital outlays needed for development of roads and ports and for other infrastructure projects; and on-going economic structural changes, as new industries, many of them from North America, Europe, and Asia, move into the region.Tull is not alone in his optimism. A new study by the World Bank sees annual growth of about 3.4 percent in Latin America and the Caribbean over the next 10 years. And private forecasting firms anticipate a somewhat similar pattern.
David Rolley, an economist with DRI-McGraw Hill, an economic consulting firm in Lexington, Mass., says that a number of Latin American markets should be particularly promising for equity investors in the next few years.
Mr. Rolley singles out Argentina and Columbia, as well as Mexico and Brazil. Although, he notes, there are special short-term challenges in the latter two cases. Mexico is going through a difficult presidential election, to be determined in late August. Brazil, Rolley says, is a ``high risk'' investing climate given continuing high inflation. But the country still offers the promise of ``high reward,'' he says, given its large population and strong industrial base.
Gulfstream has 10 percent of its assets invested in Latin America, primarily targeting Mexico, Chile, Argentina, and Columbia. A small percentage is invested in Brazil.
In the case of Mexico, about $10 billion in capital has reportedly been taken out of that nation in the past few weeks as a result of the political and economic unrest.
Many Mexican stocks have plummeted in value, thus presenting buying opportunities for investors. Interest rates in Mexico have shot upward, following short-term rate hikes in the US by the Federal Reserve Board, but also reflecting turmoil following the March 23 assassination of leading presidential candidate Luis Donaldo Colosio.
Bear Stearns and Company Inc., a New York investment house that closely follows Mexico, says the Mexican stock market will now start to turn upward. According to David Malpass, a Bear Stearns analyst, interest rates are expected to drop later this summer, as the nation regains its confidence. Bear Stearns expects economic growth of about 4 percent for Mexico for 1994. The company also assumes that Ernesto Zedillo Ponce de Leon, a ``pro-growth candidate'' who was Mr. Colosio's campaign manager, will win the Aug. 21 presidential election.
Tull also sees potential in eastern Europe, particularly Poland and the Czech Republic. He remains wary of Russia, however, given severe political and economic problems there.