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Is it time to buy back into Latin America?

Is it time to buy back into Latin America?

Posted by Juan Gavasa on March 01, 2014

Currency movements in Latin America have played out and should be the trigger for further economic growth later on this year, according to a number of emerging market managers.

The region has been much harder hit than the broader emerging markets sector over the past year, with the MSCI EM Latin America index down 27.48 per cent while the MSCI Emerging Markets index fell just 14.29 per cent.

As a result the Brazilian market, which makes up 60 per cent of the region, is trading on just 9.4 times earnings, falling to 8.5 times in 2015. Investors looking to buy into a rebound story could be attracted by this apparent bargain and hope that this market could be able to rebound faster and further.

Dean Newman (pictured), manager of the £128m Invesco Perpetual Emerging Countries fund, says that he expects the region to get a boost later on this year as weaker currencies allow its economies to piggy-back on improving developed world demand.

“However, in the major markets economic growth remains positive.”

“I believe that weaker currencies will provide a boost to competitiveness in the second half of 2014 and into the next year if this is also allied with an improving economic backdrop in the developed world.”

“I think that’s something that can help economies recover in Latin America.”

Newman says that the deviation of currencies from their five-year trend is at extreme levels, which makes it likely that there will be a reversion towards the mean in 2014.

“There has been a significant adjustment to a number of Latin American currencies and this will improve the competitive position of those economies.”

“Because emerging countries tend to have free floating currencies, this adjustment has acted as a pressure valve and as economic activity improves in the developed world, that will help the growth outlook for emerging markets.”

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