Latin American markets are being ‘reinvigorated’ by political change, according to manager of BlackRock Latin America Investment Trust Will Landers.
With political change impossible to ignore in Latin America, such as the impeachment of Brazil’s president Dilma Rousseff in August to contested elections in Peru, Argentina and Chile, “outdated populist policies are being replaced by market friendly governments focused on a reform agenda that should result in improving growth dynamics across the region.”
Mr Landers described president Rousseff’s departure in August 2016 as a “turning point” for Brazil, after declining productivity and increased state interference in key industrial sectors during his term in office. Under successor president Michel Temer’s leadership, Brazil is “getting back to the basics” with fiscal responsibility and monetary stability under a low inflation environment.
He continued that he expects Brazil’s risk premium to continue to fall and improved economic growth and lower country risk premium to provide “continuity to the positive performance of Brazil’s stock market.”
A declining trend in commodity prices over the last several years has meant other sectors have gained importance, according to Mr Landers, such as the banking sector which has become the largest sector of Brazil’s stock market. He said: “Macroeconomic changes helped the Brazilian Real to be one of the better performing emerging market currencies globally, and we are notably overweight in Brazil as a result of its current economic position.”
Mr Landers identified Peru as another nation benefitting from political change with the election of president Pedro Pablo Kuczynski in July 2016 having caused a ‘rejuvenation’ of key mining and infrastructure projects. Argentina’s president Mauricio Macri, a former civil engineer, “normalised the countries relationship with capital markets, removed foreign exchange controls, and has focused on developing the fossil fuels markets with a range of favourable economic policies.”
In Mexico, an ‘aggressive’ reform in 2012 with the election of president Enrique Peña Nieto resulted in 10 consecutive quarters of positive growth in its consumer economy. Mr Landers concluded “our cautious view currently reflects the uncertainty regarding trade policy negotiations with the new US administration.”