Coping with Risks in Latin American ETFs

Includes: ECH, EEB, EWZ, GXG, ILF
by: Tom Lydon

Latin America was the star of the global investing show in 2009. Now some are raising the red flag that this region and its ETF could be overheated. If this is actually happening, there are ways to protect yourself and keep from getting burned.

Although you could have earned a 93% return in the MSCI Latin America index, or 106% in Brazil last year, holding onto your gains could be tough in 2010, says Gail MarksJarvis for The Chicago Tribune. Some strategists are sending out warnings to clients, such as Citigroup strategist Geoffrey Dennis, who has watched the shares dip 9%.

What’s the problem?

Because China is cracking down on spending and lending, the rest of the markets have responded as economic questions and uncertainties arise. Right now, they are just that: uncertainties. But it raises concerns down the line, namely, if China slows a lot, that could reduce business for Latin American companies which have been providing the commodities that China has needed for its growth spurt.

Also watch what’s happening in Greece, experts say. Their debt crisis could have a contagion effect, spreading to other markets in the region.

What can you do? Have a strategy. We’re beginning to see many areas approaching their long-term trend lines or nearing that all-important 8% off the high, so it’s important to be alert and ready to hit the escape button when necessary.

  • iShares MSCI Brazil (NYSEArca: EWZ)

  • iShares MSCI Chile (NYSEArca: ECH)

  • Global X/InterBolsa FTSE Colombia 20 (NYSEArca: GXG)

  • iShares Latin America 40 Index (NYSEArca: ILF)

  • Claymore BNY/Mellon BRIC ETF (NYSEArca: EEB)