A More Integrated Latin America

By Mark Mobius, Ph.D. Executive Chairman for Templeton Emerging Markets Group.

source: http://www.franklintempleton.lu/pdf/news/emerging-markets-investing.pdf

At the end of November 2010, Chile, Colombia and Peru integrated their stock
exchanges under the acronym MILA (Mercados Integrados Latinoamericanos or
Integrated Latin American Markets), providing local investors with more investment
opportunities and also allowing companies to access a broader investor base. Once
fully integrated, this new regional exchange should have the highest number of issuers
in Latin America (ahead of Mexico and Brazil), the region’s second-largest market
capitalization (after Brazil) and its third-largest trading volume (after Brazil and
Mexico). For the year to 30 November 2010, according to MSCI indexes in U.S.-dollar
terms, equity markets in Chile, Colombia and Peru returned 40.29%, 39.17% and
47.47%, respectively, outperforming the larger markets of Brazil and Mexico, which
returned -0.33% and 20.66%, respectively.¹
Two major events brought the small Andean country worldwide media coverage this
year. The most recent was the spectacular rescue of a group of miners trapped
underground for more than two months. And earlier this year, the country was struck
by a devastating earthquake with a magnitude of 8.8. The government of Chile’s newly
elected president, Sebastián Piñera, has targeted 6% annual gross domestic product
(GDP) growth during his term and wants to create 200,000 new jobs each year. So
far, the country seems to be on track despite the impact of the earthquake, with GDP
projected to grow 5% in 2010 and 6% in 2011.²
In August this year, Colombia elected a new president, Juan Manuel Santos, who is
expected to lead the government until 2014. He took over from the very popular Álvaro
Uribe, who had led the country since 2002. Mr. Santos was a former minister of
defense under the Uribe government, which was very successful in limiting the threat
imposed for decades by FARC (Revolutionary Armed Forces of Colombia) guerilla
forces in the country. Mr. Santos’s efforts resulted in better security conditions, which
increased investment and improved the world’s perception of Colombia. The
Colombian economy was relatively weak in 2009, but recovery is currently underway,
with GDP projected to grow 4.7% in 2010 and 4.6% in 2011.³ Much investment has
been taking place in the energy and mining sectors, driven by a large resource base
and favorable regulation. The expectation that Mr. Santos will continue the marketfriendly
policies of his predecessor could reinforce the positive trend and possibly
contribute to steady growth rates.
Peru will hold presidential elections in April 2011. The last presidential elections were
overshadowed by the threat of a takeover by an extreme leftist candidate. This time,
following very strong economic growth during the last few years, the polls indicate that
the majority of Peruvians now favor a moderate candidate. Politics in Peru are
dynamic, but the economy has been stable during the last 10 years, thus creating a
foundation for sustainable growth. Peru’s GDP is projected to grow 8.3% in 2010, one
of the highest rates in the region.³ Moreover, Peru is the world’s top producer of silver,
second in zinc, third in copper and tin, fourth in lead and sixth in gold.4 In addition, the
country has managed to develop alternate export products, especially in the
agricultural sector, and appears to offer strong growth potential in retail and financial
services. We think it is quite possible that Peru may continue to economically
outperform most of its neighbors over the next few years.
A More Integrated Latin America
1 Source: MSCI. All MSCI data is provided “as is.” In no event shall MSCI, its affiliates or any MSCI
data provider have any liability of any kind in connection with the MSCI data described herein.
Copying or redistribution of MSCI data is strictly prohibited. Indexes are unmanaged, and one
cannot invest directly in an index. Past performance does not guarantee future results and
results may differ over future time periods.
2 Source: IMF Report: Chile: Strong Recovery After Devastating Earthquake, 29 September 2010.
3 Source: IMF, World Economic Outlook, October 2010.
4. Source: U.S. Department of State, Background Notes, Peru, 30 September 2010.

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