Latin American ETFs Set for Speedy Growth

Includes: ECH, EPU, EWW, GXG, ILF
by: Tom Lydon

One area of the world has endured the stresses of the global economic implosion and financial crunch relatively well. Latin America’s economies, along with related exchange traded funds, may be set for a speedy return to growth. However, some may not pick up as fast due to external factors.

Prior the financial crisis, Latin America held record-high international reserves, manageable current account imbalances, low debt and a financial system that was not exposed to “toxic” assets or reliant on foreign funding, comments Shelly Shetty for Poder 360. The region recovered rather quickly, aided by expansionary economic policies, a jump in commodity prices and a stream of external private capital inflows.

Fitch Ratings firm calculates a regional growth of 3.6% in 2010 after a contraction of 2.9% in 2009. The recovery is expected to be supported by a better global financial and economic environment, increases in commodity prices and more capital inflows. The ratings firm projects a faster rebound in Brazil, Chile, Peru and Panama where growth will likely reach a minimum of 4% in 2010 as a result of a recovery in consumer and business confidence.

However, Fitch believes that economies in Mexico and some countries in Central America and the Caribbean will be fettered by the drastically lower exports, tourism and overseas workers’ remittances from the United States. Mexico is expected to expand 3% in 2010. Columbia is believed to produce modest growth. Argentina, Ecuador and Venezuela have been constrained by a lack of private investment, but Argentina may bounce back faster because of its relations with Brazil.

Latin America could face appreciating currencies as more capital inflows to the region, commodity prices rice, domestic interest rates increase and a faster economic growth compared to developed markets. The other problem the region could face is its timing in withdrawing fiscal stimulus. Still, the governments have lots of resources to draw upon if their debt becomes a little extended.

  • iShares MSCI Chile Index (NYSEArca: ECH): up 85.1% year-to-date

  • Global X/InterBolsa FTSE Columbia 20 Index (NYSEArca: GXG): up 92.6% since inception

  • iShares Latin America 40 Index (NYSEArca: ILF): up 89.7% year-to-date

  • iShares MSCI Mexico ETF (NYSEArca: EWW): up 57% year-to-date

  • iShares MSCI All Peru Capped Index (NYSEArca: EPU): up 33.2% since inception

Max Chen contributed to this article.