Buying opportunity in Latin America?

January 18, 1995|By Andrew Leckey | Andrew Leckey,Tribune Media Services

U.S. investors, who clearly hadn't expected the peso to head south to a new low, have been fleeing Mexican equities and stock funds in the wake of that stock market's 44 percent plummet in 1994.

Yet a number of big-time investors view this collapse as a cautious buying opportunity in a country and in companies that retain upbeat long-term prospects.

Prices are bargain-basement. Stocks of Mexican firms, traded on U.S. exchanges as American Depositary Receipts, suffered a disastrous year.

Widely held Telefonos de Mexico (Telmex) tumbled 38 percent in value; Cemex, Tolmex and Cifra each fell 37 percent; and Grupo Televisa dropped 55 percent. Top performer among larger Mexican ADRs was Empaques Ponderosa, up a modest 7 percent.

If you're still holding Mexican stocks and stock funds, it probably makes sense to stay put, say the experts. Those willing to be very patient and await results amid the continuing, gut-wrenching turmoil should start investing little by little right now.

Whatever you decide, don't paint all Latin American markets with the same broad stroke. Economically revived Brazil gained 60 percent in 1994, Peru was up 50 percent, Chile rose 45 percent and Colombia increased 20 percent.

"Although you're seeing panicked selling from U.S. investors who don't have the time or expertise to evaluate, we're buying stocks when we have cash," said Robert Meyer, head of Morgan Stanley's Latin American equity group.

Telmex is the safest bet because it's definitely not going to go under, he explained, although he also likes construction firm Tribasa and bank Grupo Financiero Bancomer. They're all offered as ADRs here.

"I suspect 1995 will be another difficult year for Mexico, in which the economy will have to slow down and interest rates will have to stay high," predicted Soraya Betterton, portfolio manager of GT Latin America Growth Fund.

But Mexico did the right thing in devaluing the peso, she added, because the move brings the economy closer to equilibrium and will help exports. Mexican equities are attractive, her favorites being Kimberly-Clark de Mexico and retailer Grupo Elektra. Both offer ADRs.

"The tightening moves of the Federal Reserve and higher U.S. interest rates caused the outflow of money from the U.S. and other countries into the emerging markets to slow," explained Eduardo Cabrera, manager of Latin American equity research for Merrill Lynch & Co.

"In addition, some people believe we're seeing the impact of last year's assassination of Mexican presidential candidate Luis Donaldo Colosio, who was better prepared to run that country than new President Ernesto Zedillo."

Still, Mr. Cabrera is making long-term commitments. Hotel operator Grupo Posadas should gain from tourism tied to the cheaper peso, while conglomerate Grupo Carso and mining firm Grupo Industrial San Luis will become more competitive lobally. All three have ADRs.

Mexico's long-term fundamentals are solid and any developing nation suffers these problems, said Kim Rebecca, analyst on Latin America with the Morningstar Mutual Funds investment advisory service.

Latin American funds are switching more of their portfolios to Brazil, she said, because it has been strongest and has tremendous resources.

Closed-end funds [traded on U.S. exchanges as individual stocks] specializing in Mexican equities were hit hard in 1994, as these examples from Morningstar indicate:

* Mexico Equity & Income Fund, Oppenheimer & Co., New York, down 22 percent in market value.

* Emerging Mexico Fund, PaineWebber Inc., New York, down 37 percent.

* The Mexico Fund, Impulsora del Fondo Mexico S.A. de C.V., Mexico City, Mexico, down 41 percent.

Open-end mutual funds that in clude Mexican equities declined, yet their diversity among a number of Latin countries eased the fall.

Best-performing funds, according to Morningstar, were:

* GT Latin America Growth Fund, GT Capital Management Inc. of San Francisco, down 6.65 percent.

* BT Latin America Equity Fund, Bankers Trust of New York, down 10.79 percent.

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