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Latin America: Opportunity may be around the corner

Latin America, often times viewed through the lens of geopolitical instability, may have strong long term investment opportunity. Commonwealth Global Fund manager Robert Scharar of FCA Corp took a look at Latin America — here are his findings:

Brazil, Argentina, and Mexico are large global economies, and each one possesses financial infrastructure and reliable investment opportunities. However, Argentina is suffering from a public debt to GDP ratio of greater than 100%, and this high level of debt limited the country’s ability to implement fiscal stimulus during the COVID-19 pandemic which makes it a difficult environment for foreign investors. The Mexican government has also been criticized for their conservative use of fiscal stimulus in response to the pandemic. Brazil, the largest of the Latin American economies, is a different situation. Brazil’s controversial politically rightwing president Jair Balsonaro has been criticized for his response to COVID-19, but the country’s Minster of the Economy, Paulo Guedes, remains popular because of his use of aggressive fiscal stimulus in the face of the pandemic. While political turmoil exists, it is still a democracy that will work through the issues. This, along with Brazil’s size and diversified economy make Brazil more attractive long term.

While Argentina, Mexico, and, to some extent, Brazil have been criticized for their economic response to COVID-19, Peru, Chile, and Colombia are frequently referred to as models for economic growth in developing nations. Chile and Peru especially, prior to 2020, had experienced steady and impressive GDP growth levels throughout the 2000’s and have avoided the pitfalls of corruption that oftentimes hampers Latin American countries. Additionally, the relatively liberal environment in both countries has meant that both fiscal stimulus and vaccine programs have been used to allow the countries to experience quick recovery from the pandemic. In terms of politics, Peru has  elected a leftwing presidential candidate, Pedro Castillo, and his threats to nationalize the profitable mining industry in the country, while deemed by most experts to be unrealistic, have still left people keeping a close eye on how the situation develops within the country. Chile has also experienced prominent leftwing movements in recent years, as demonstrations against income inequality in the country have led to the creation of a committee to rewrite the country’s Constitution. Colombia, similarly, has been in the news recently for large protests against the country’s rampant income inequality. However, the country also contains a strong number of industrial centers and is expected to undergo large-scale diversification of their economy beyond natural resources in the near future.

The current outlook is that Brazil, Chile, and Peru are the most interesting Latin American countries from an investment standpoint. Regardless of which country one chooses to focus on, sectors like mining, agriculture,  energy extraction, and in some areas, manufacturing are key across Latin America. Peru and Chile are internationally significant mining economies, extracting a large portion of the world’s gold, silver, and copper.  Brazil has spent significant resources to develop their large-scale industrial sectors in recent history and is home to Embraer, the world’s third largest producer of commercial aircraft. In Chile, the government has spent significant resources, as well, to diversify their economy beyond the mining sector and projections have high hopes for the transportation and tourism sectors, as well as the food and beverage manufacturing sectors.