Latin America a hot market for investors

Many company stocks proving to be good values as 1980s reforms progress

Your Money

May 16, 2004|By Andrew Leckey

GRANADA, Nicaragua - When Enrique Urbina was a youngster two decades ago, contras were battling Sandinistas in a Nicaragua torn by violence. But his parents made sure he went to school each day in his home city of Managua.

With only 30 chairs in the school for 70 students, those who didn't arrive early had to sit on the floor or stand. Parents banded together and built chairs for their children.

"So I always carried my chair to and from school each day," recalls Urbina, who now conducts tours of this recovering country that include the city of Granada's shopping district. It still shows signs of past bombing. There also is the Masaya volcano into which the bodies of political prisoners were once dumped.

A beautiful and peaceful place courting tourism, Nicaragua bears scars from a turbulent past and hasn't achieved prosperity. "The 15 years of peace we've had has not been enough, for we do not yet have the infrastructure we need in place yet," Urbina said wistfully.

Nicaragua shares a border with Costa Rica, known as Central America's Switzerland because it hasn't had a standing army for decades. Indicative of distinctions between Latin American nations, Nicaragua continues a struggle to recover while Costa Rica reaps dividends from a history of tranquillity.

"We initiated investment coverage of Costa Rica a month ago because, even though there are only four stocks, it is a sound and safe country," said Jay Garcia, managing director of Latin American equity research for Samuel A. Ramirez & Co. in New York. "Tourism is its No. 1 industry, and we feel there will be a lot of future interest from foreign investors."

Costa Rica's Florida Ice & Farm Co., which sells soda and beer (with 25 percent of its beer operations owned by Heineken), and financial institution Banco Cuscatlan are Garcia stock recommendations. Neither is available directly on U.S. exchanges.

Latin America, along with other emerging economies around the world, has experienced a stock market resurgence. Though there has been some cooling lately, the average stock mutual fund investing in Latin America is up 36 percent over the past 12 months, says Lipper Analytical Services.

Hottest markets in U.S. dollar terms the past 12 months have been Colombia, up 141 percent; Venezuela, 81 percent; Peru, 54 percent; Chile, 44 percent; Brazil, 40 percent; and Mexico, 36 percent. But all of these markets were in recovery mode.

"Latin America hit a very deep bottom, and many people were fearful that it would never come back," said Geoffrey Dennis, Latin American equity strategist with Smith Barney in New York. "There had been the fallout from the collapse of Argentina, chaos in Venezuelan leadership and worries that Brazil would default on its debt."

The region seems on the right path as reforms initiated in the 1980s continue to progress. The floating currencies in the major markets make their economies more flexible and less vulnerable than in the past.

"It's a good time to be investing in Latin America because you still see many company stocks trading at half their valuations," said Claudio Brocado, portfolio manager for Fidelity Latin America Fund, up 41.05 percent over the past 12 months.

The greatest economic stability in the region is in Mexico, which often moves in sync with the United States because three-quarters of its exports go to the United States. But in virtually every Latin American country, politics are a persistent concern.

"In Brazil, the economy is doing fine, but the stock market has been selling off entirely due to politics and the president's inability to put out fires surrounding a corruption scandal," said Andrew Clark, senior analyst with Lipper Analytical in Denver. "That's not unusual in Latin America."

Top holdings of Fidelity Latin America include these Mexican stocks trading on U.S. exchanges as American depositary receipts: Telecommunications firm Telefonos de Mexico (TFONY); wireless provider America Movil (AMX); media company Grupo Televisa (TV); and cement manufacturer Cemex (CX). It also owns Brazilian oil company Petroleo Brasileiro (PBR).

Also in Brazil, Garcia recommends the U.S.-traded shares of Braskem (BAK), the country's largest petrochemical firm, while Dennis favors paper pulp stock Votorantim Celulose e Papel (VCP) and financial institution Banco Bradesco (BBD).

The top-performing Latin American funds over the past 12 months, according to Morningstar Inc., have been:

Merrill Lynch Latin America (MDLTX), $127 million in assets; 5.25 percent "load" (sales charge); $1,000 minimum; 800- 995-6526; three-year annualized return of 7 percent; up 41.36 percent.

Fidelity Latin America (FLATX), $327 million; no load; $2,500 minimum; 800-343-3548; three-year annualized return of 7 percent; up 41.05 percent.

Morgan Stanley Latin America Growth (LATAX), $52 million; 5.25 percent load; $1,000 minimum; 800-869-3863; three-year annualized return of 6 percent; up 37.91 percent.

T. Rowe Price Latin America (PRLAX), $221 million; no load; $2,500 minimum; 800-638- 5660; three-year annualized return 6 percent; up 34.16 percent.

Scudder Latin America (SLAFX), $365 million; no load; $2,500 minimum; 800-621-1048; three-year annualized return 6 percent; up 27.95 percent.

Andrew Leckey is a Tribune Media Services columnist.

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