Full Video Transcript Below:
In recent months, we’ve become increasingly positive on Latin America for our emerging market fund, and there are a couple of reasons for that. First, politics. While we were perhaps unsure a little bit about how AMLO in Mexico and Lula in Brazil more recently would work as leaders, we’ve become a lot more comfortable with the way things are going in Brazil. The reform process continues, and recent changes in the tax code are very welcome indeed. In Mexico, AMLO had a reasonably successful COVID strategy, and we expect the upcoming elections to see continuity in most policies.
The second point is geopolitics. Latin America is a relatively friendly place to do business, particularly for the USA, and Mexico, in particular, is very well-placed for anyone diversifying their production base out of China. Clearly, if you’re selling into the USA, Mexico is the prime place, and the result is something of an investment boom that’s driving the economy, employment, and incomes, creating a very positive environment for Mexico. In addition, one of the things that Latin America has done very successfully in recent years is reform their pension system, and Mexico is up there with them, with a very strong and growing pension system which helps finance this investment boom we’ve talked about.
The third point is economic policy. Latin America was not immune from the recent inflationary surge around the world, but central banks have generally been very positive and raised rates aggressively, knocking this inflation on the head. This was very bad news for the economies and consumers, but the good news now is that this is now reversing fast. In Brazil, we have inflation back down to 4%, but real interest rates are still up at 11.5%, so there’s significant room for those to come down further, and the same in Mexico and many other countries around the region. This should turn what was a headwind into a tailwind for consumption, real income, and most of our companies in Latin America.
The final point is valuations, which to us look very reasonable. Most of our Mexican and Brazilian holdings are on low to mid-teens P/E ratios and high teens growth, and look very attractive to us. That’s why Latin America is now over 20% of our portfolio, the highest it’s ever been. Thank you.
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