Mark Mobius, the emerging market specialist from Templeton Asset Management reckons that Brazil offers a great opportunity for investors with nerve. We asked him why.
What makes Latin America so attractive to investors?
The region's main attraction is its huge consumer market with pent-up demand for goods and services, as well as excellent companies that are at the same time under- leveraged and inexpensive. On top of all that, its natural resources are among the largest in the world.
How resilient can the region be in the context of a global slowdown and which markets are well-armed to resist a slowdown in the global economy?
During the boom in the past five years, Latin American countries have accumulated substantial reserves. Brazil, for example has over US$200 billion in foreign reserves and the government has no foreign net debt. Overall, our main markets, Brazil, Mexico,
Chile, Peru and Panama, have shown stable political environments, responsible fiscal discipline, commitment to a floating exchange rate and honour of contracts in place. All these support the region's strength in times of uncertainty.
In addition to natural resource and agriculture producers, what are the other key drivers of growth in Latin America?
Although the region is the world's largest (and lowest cost producer) of many commodities, the development of the local domestic consumer markets is another important driver. Take Brazil for example, with 190 million people and Mexico with 100 million. Bank loan penetration is still very low in both countries (38% in Brazil and 18% in Mexico) even in comparison to some emerging markets. Thus, this not only reduces the risk of bad debt, it is also a barometer of how under penetrated the countries are in terms of goods and services. Companies have thus been following conservative lending and leveraging policies.
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