As the developed world continues to struggle out of the Great Recession, emerging markets performed relatively well in 2010 and are expected to sustain this growth and performance in the coming year. China continues to draw headlines and steal most of the attention; however, in the coming year, Latin America may be the place to look and for good reason.
Inflationary threats and real estate bubbles have taken front and center stage in China, resulting in the nation increasing its benchmark interest rates for the second time in three months and increasing banking reserve ratios to reduce risk, which could hinder future economic growth. A different song is being sung in Latin America as inflation is expected to remain subdued, which is expected to lower pressure on central banks to change interest rates which will likely further limit the possibilities of tighter monetary policies.
According to experts at Bank of America-Merrill Lynch (NYSE:BAC), the true driver behind Latin America’s prosperity in the coming year is expected to be domestic consumption, which will likely be driven by increased purchasing power. Many Latin American nations, like Brazil, Chile and Peru are rich in commodities and as demand for energy based commodities such as crude oil and agricultural based commodities such as corn and sugar remain insatiable worldwide, these nations are bound to reap the benefits of rising commodity prices. Increased commodity prices coupled with underleveraged companies and households are the perfect mix to fuel domestic growth in these nations.
To gain access to Latin America, one could consider the following:
- iShares S&P Latin America 40 Index Fund (NYSEARCA:ILF), which is a diversified play on Latin America that allocates 56.45% of its assets to Brazil, 24.53% to Mexico, 12.29% to Chile and 5.98% to Peru. In regards to sector weightings, ILF allocates nearly 26.2% of its assets to materials, 21.9% to financials and 12.8% to consumer staples.
- SPDR S&P Emerging Latin America ETF (NYSEARCA:GML), which allocates 64.57% of its assets to Brazil, 20.58% to Mexico, 10.41% to Chile and 4.45% to Peru. GML boasts nearly 24.7% of its assets to materials, 19.9% to financials and 13.4% to energy.
Disclosure: No Positions