"I do not think much of your selection... but time will tell." That's one of the more polite criticisms I've had about some of the companies I've mentioned for The New World. At least he was willing to give them the benefit of time. But the point made by LosRobles' is a fair one. It's very easy for me to write up stories about countries and companies with exciting potential, but does any of it ever come to fruition?
Well, it's been six months since I first began writing about Latin America in The New World, so now seems like a good time to revisit these companies and see how they're getting on.
As regular readers will know, one of my major themes has been the Pacific Alliance a trade grouping made up of Mexico, Colombia, Peru and Chile. These were my favourite economies in the region anyway, so when their presidents decided to make a trade bloc, I figured things could only improve. I've spent the last six months highlighting sectors and companies within those countries that I think could interest readers.
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My steel, cement and wind ventures
One of the big themes I've been exploring is Latin American infrastructure. As I learned the hard way when living and working over there, infrastructure in the region is pretty bad. For decades governments have underspent on basic transport and power networks, a problem made worse by growing populations. But now countries across the region are looking to put that right.
Thanks to careful management of the commodity boom in the first part of the 21st century, policymakers in placessuch asChile, Peru and Colombia are now reinvesting the proceeds in infrastructure. Moreover, their sound policies, regulatory framework and economic growth are helping to attract billions of dollars of extra capital from the private sector.
So back on 29October, I suggested that regional steel maker Ternium (NYSE: TX) and Peruvian cement outfit Cementos Pacasmayo (NYSE: CPAC) could be good ways to play the story. They haven't let us down. Ternium is up 15%, while Cementos Pacasmayo is up 36%. And I expect to see them rise a great deal further from here.
A less conventional infrastructure suggestion was Spanish wind turbine maker Gamesa (SM: GAM). Again, one of the things that attracted me was that the Latin American non-hydro renewable energy sector is undeveloped despite having such potential. Since I wrote about it on 19 March, it's up 16%.
The gamble on the Chilean peso
As many readers like to point out in the comments section below my articles, the Achilles heel of the Andean members of the Pacific Alliance is their reliance on commodities. Chile is heavily dependent on copper, while Colombia and Peru on oil and also benefit from mining and energy projects.
So, with commodity prices looking shaky, last November I looked at possible waysto try to mitigate that risk. I suggested Chilean wine producer Vina Concha y Toro (NYSE: VCO).My basic thinking was that if copper does tank, it would drag the Chilean peso down with it. And that would be great for a firm whose major costs are in pesos, but sales in dollars and euros.
So far that hasn't happened, with copper prices and the Chilean peso (against the dollar and the euro) in more or less the same place now as they were in November. Meanwhile, the share is down 2% with a recent strike action by production workers weighing on the price.
Ever since I mentioned the stock, I've found myself buying a lot more of their Casillero del Diablo-branded wine in a one-man effort to boost their sales. Oh well, at least it tastes nice.
Two banking stocks reading the script
Another theme that I like is financial services. I am particularly keen on banks in Peru and Mexico, where populations that have traditionally been underbanked' are now finally starting to get their hands on credit cards and the like.
According to JP Morgan Peru's bank, credit to GDP stands at 28%, compared to 44% in Brazil and 71% in Chile. It's a similar story in Mexico where the total sum of credit made available by banks and other financial intermediaries stands at just 34% of GDP. Peru and Mexico are both on the right side' of the credit cycle and, as their economies grow, so will demand for banking services.
But that's not the only reason I like banks. For the average British retail investor, investing directly in the Pacific Alliance countries isn't easy. Accessing the local stock markets from abroad can be expensive, but if you buy via an exchange-traded fund (ETF), you'll find that in the smaller economies, the country-specific ETFs are dominated by one or two large, local firms.
But, as Will Landers, manager of BlackRock's Latin American Investment Trust once pointed out to me, if you have a country with a clean banking system and growing economy, buying a bank is often a good way to play the wider growth. It's involved in business sectors across the economy, so it's almost like buying an ETF.
So, for both those reasons, I suggested Peruvian bank, CrediCorp (NYSE: BAP), on the26 November and Mexican bank Banorte (US: GBOOY) on the 5 February as beingworth a look. They're up by 8% and 10% respectively since I wrote about them. I believe they both stand to benefit from further economic growth.
There is growth to be found here
I've also looked for opportunities that should benefit from increasing ties between the Pacific Alliance countries.In particular, I like the new generation of 'multilatinas' locally-owned companies that are spreading out across the region. These firms understand the local market and, thanks to the strong economic growth in their home countries, are making serious investments in winning new business.
As a result, they're beating back Western competitors.In 1999, less than half of Latin America's top 500 firms were local. Now more than three quarters are and the trend is accelerating. One of my favourite multilatinas is Cencosud (NYSE:CNCO.T), a Chilean owner of supermarket chains and department stores across the Pacific Alliance.
It's a risky tip as it has taken on a lot of debt in its bid to snap up competitors but I think it has unique exposure to the Latin American consumer. I first mentionedit on 12December and it's now up 5%.
Aside from these main themes, I've also made forays into other areas. For example, I'm very bullish on Central America even though it's not part of the Pacific Alliance. Finding a cheap way for UK private investors to invest in Latin America isn't easy, but eventually I settled on Copa Airlines (NYSE: CPA).
The Panamanian firm is one of the region's biggest airlines and should benefit as Central America grows richer. So far it hasn't disappointed, and itis up 23% since I wrote about it on 18February.
The average rise (mean) of all the companies has been 13.9% over an average investing timeframe of four months. That's not too bad. If you bought in congratulations.
Over the long term, I expect well-managed Latin American companies operating in key themes such as infrastructure to do a great deal better than that. And this is the real purpose of today's article. Too many British investors restrict themselves to British stocks when there's a whole raft of exciting opportunities to be had in far-flung parts of the world.
When a share goes up, it is always very tempting to sell it. After all you haven't made a profit until you do. Deciding when to sell a share depends a lot on your attitude to risk and your circumstances but, for what it's worth, I think a lot of these themes still have further to run.
Break out of the British investor mentality
Truth be told, the point of today's article is not to paint me as some type of investment guru. Let's face it - if the eurozone crisis re-erupted tomorrow and spooked global markets, some of the riskier stocks would likely tank even more than everyone else's.
Meanwhile, company specific events, such as the strike at VCO, need to be monitored more closely and frequently than I can do with this bi-weekly column.
I've only looked at a six-month period today. Very few investors have enjoyed the paper gains that Profit Hunter readers have enjoyed over the last year.
There, unlike The New World, he keeps an updated portfolio of recommended shares that he constantly monitors, letting readers know exactly when he believes they should sell up. So far his strategy of investing in undeveloped parts of Southeast Asia is working staggeringly well. To find out more about the type of stocks Lars has been picking you can read his latest Profit Hunter report here.
Right, that's it from me. Next week I'm heading out to Colombia to report on the Pacific Alliance summit taking place there. It's going to be full of high-profile politicians and businessmen so hopefully I'll come across some interesting investment ideas I'll let you know how I got on in the next issue.
This article is taken from The New World, MoneyWeek's FREE regular email of investment ideas and news from Asia and Latin America. Sign up to The New World here.
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