Latin American investing is hot. The stocks and funds that invest in these countries have been sizzling in 1991, based on hopes that the instability of the past won't continue. Privatization of state-owned companies and attempts to rein in economic problems are the reasons behind the euphoria surrounding the issues of these countries.
"Rich in energy and other natural resources and with a population growth rate three times that of the United States, Latin America is a prime area for long-term investment," advised Jack Lavery, senior vice president of Merrill Lynch global research and economics group. "Concerns about bouts of economic and political instability should be diminishing, and Latin American countries look good when compared to the recessions in several European countries and the decline in growth rates of certain Asian countries."
Returns have been impressive. For example, the top Latin American closed-end funds (traded as stocks on the New York Stock Exchange) in 1991, according to Thomas J. Herzfeld Advisors of Miami, Fla., have been:
Brazil Fund, up 150.7 percent in value.
Chile Fund, up 115.7 percent.
Latin America Investment Fund, up 91.3 percent.
Emerging Mexico Fund, up 71.3 percent.
Mexico Fund, up 58.2 percent.
Mexico Equity & Income, up 33.9 percent.
In addition, San Francisco-based GT Global Financial Services this summer initiated a conventional open-end mutual fund specializing in Latin America.
Stocks in the new fund's portfolio include Argentina's Perez Companc and Comercial del Plata in oil and gas exploration; Mexico's banking firm Banaxi, oil cylinder maker Tamaxa, cement company Tolmex and corn flower processor Maseca; and Venezuela's Sivensa steel firm and Electricidad de Caracas electric company.
"If I had to pick one country which looks best for investing right now it would have to be Mexico, and 39 percent of our portfolio is in Mexican securities," said Emilio Bassini, portfolio manager of the closed-end Latin America Investment Fund. "Mexico's budget deficit has been significantly decreased, inflation has declined from 150 percent to 15 percent and the country is making a lot of efforts to meet a 6 percent growth rate by 1992."
Largest holdings in Latin America Investment Fund are Telefonos de Mexico, Telefonos de Chile, Mexican retailer Cifra, Argentina's long-distance carrier EnTel and the Mexican Cemex cement firm.
In addition to Mexico, the fund has 22 percent of its holdings in Chilean stocks because the government has maintained its commitment to a free market, democracy seems to be surviving there and inflation has gone from 27 percent to 8 percent. The only problem is whether the recent pace of stock advancement can be maintained.
Another 11 percent of the fund is in Brazilian stocks. That's a smaller portion because its government doesn't seem to be able to control inflation. Spending must be curtailed and tax reform is required. Nonetheless, its stock market has gained 194 percent in 1991.
There's a 6 percent stake in Argentina, thanks to new laws that curb inflation and tie the currency to the dollar.