Latin American Economies Race Ahead

Includes: BAP, BVN, ECH, EPU, SCCO
by: TraderMark

There was a nice piece in the New York Times on the strength in some of the Latin American economies. While we focus on Brazil here, we've also discussed Chile in the past; actually a fascinating article about how different the Chile financial leaders were than their American counterparts - saving for a rainy day is actually part of the vernacular. [May 28, 2009: WSJ - Prudent Chile Thrives Amid Downturn] (Click to enlarge)

Peru is more of an issue since the ETF for the country is thinly traded (100K shares a day, with only $130M invested); to be frank until I was writing this story I did not even realize a Peru ETF had been approved..
Outside of that vehicle I can only find 2 stocks that are based on Peru, and one - Compania de Minas Buenaventura (NYSE:BVN) is essentially a precious metal name. The other name is a financial that has been showing up on my relative strength list for a few months and I consider a missed opportunity - Credicorp (NYSE:BAP). That's about it for Peruvian stocks. (Southern Peru Copper, now named Southern Copper (NYSE:SCCO), is based in Arizona.)
What is interesting is both the Peruvian and Chilean markets seem to be holding up quite well considering the damage being done in most developing and developed markets the past 2 months. Considering the perceived reliance on China in Latin America, this 'decoupling' sure raises an eyebrow as its different than in 2008 when every market was crushed together.
Via NYT:
  • While the United States and Europe fret over huge deficits and threats to a fragile recovery, this region has a surprise in store. Latin America, beset in the past by debt defaults, currency devaluations and the need for bailouts from rich countries, is experiencing robust economic growth that is the envy of its northern counterparts.
  • Strong demand in Asia for commodities like iron ore, tin and gold, combined with policies in several Latin American economies that help control deficits and keep inflation low, are encouraging investment and fueling much of the growth. The World Bank forecasts that the region’s economy will grow 4.5 percent this year.
  • Recent growth spurts around Latin America have surpassed the expectations of many governments themselves. Brazil, the region’s rising power, is leading the regional recovery from the downturn of 2009, growing 9 percent in the first quarter from the same period last year. After a sharp contraction last year, Mexico’s economy grew 4.3 percent in the first quarter and may reach 5 percent this year, the Mexican government has said, possibly outpacing the economy in the United States.
  • Smaller countries are also growing fast. Here in Peru, where memories are still raw of an economy in tatters from hyperinflation and a brutal, two-decade war against Maoist rebels that left almost 70,000 people dead, gross domestic product surged 9.3 percent in April from the same month of last year.
  • “We’re witnessing what are probably the best economic conditions in Peru in my lifetime,” said Mario Zamora, 70, who owns six pharmacies in Los Olivos, a bustling working-class district of northern Lima where thousands of poor migrants from Peru’s highlands have settled.
  • Latin America’s growth largely reflects a deepening engagement with Asia, where China and other countries are also growing fast. China surpassed the United States last year as Brazil's top trading partner, and is the second largest trading partner in countries like Venezuela and Colombia, Washington’s top ally in the region.
  • Michael Pettis, a specialist at Peking University in Beijing on China’s financial links with developing countries, said the region was especially exposed to Chinese policies that had driven up global demand for commodities, including what appears to be Chinese stockpiling of commodities.
  • Even so, they applaud home-grown policies that are supporting growth. Chile, for instance, saved revenues from copper exports when commodities prices climbed, allowing it to enact a stimulus plan last year and rebound from the February earthquake. Chile’s economy grew 8.2 percent in April from the previous month, its biggest increase since 1996.
  • Latin America’s recovery is translating into new political sway, particularly for Brazil, which has paid its debt to the fund and is seeking to enhance its voting stake in it. As Brazil posts China-level growth, President Luiz Inacio Lula da Silva is nurturing soft-power ambitions, with ventures like a state television station that will broadcast to African nations.
  • “Like other Latin American countries, Brazil needs to improve its infrastructure and train more engineers,” Mr. Rothkopf said, “but it embodies the rise of emerging powers, one of the great themes of this century.”

Original article