Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Investing in Latin America, the Importance of Politics

Stock-Markets / Emerging Markets Nov 10, 2010 - 06:59 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleMartin Hutchinson writes: Brazil's election win by the Workers Party candidate Dilma Rousseff has cast a dark shadow over the investment prospects of that long-fashionable "BRIC" economy.

And it has underscored an important lesson for investors: In Latin America, the political climate is really the No. 1 factor in determining where to invest for the long run.


In short, when looking to invest in Latin America, let politics be your guide to profits.

Different Rules
This isn't true in parts of the world beyond Latin America. In those markets, while investors must still keep an eye on the political picture, there are many other factors that in most cases are more important when deciding where to put your money.

For instance, many investors have made excellent money investing in Sweden and Germany while those countries were under social-democratic rule. And even Great Britain did pretty well for investors during the early years of the center-left premiership of former Prime Minister Tony Blair.

The same is true for China, where long-term investors have done quite well - even though the county is still nominally run by communists.

India is a more complex situation: It elects a succession of Congress Party governments (often with communist support), who don't try hard enough to control public spending. But since 2004, the new regimes have at least had the good sense to not destroy the prosperity that their center-right predecessors had left them.

In Latin America, while there are sometimes short-term rallies under leftist governments, the overall picture is different. The line between right and left is quite severe ... most likely a cause of - and a result of - that continent's glaring income inequalities.

European social democrats - and even the Chinese communists - understand the importance of allowing capitalist companies to function profitably. But there is no such commitment in Latin America.

A Country-By-Country Strategy
In Latin America, there are some variations from country to country, some of them significant enough to influence profit potential. It's well worth taking the time to examine the regimes from country to country.

Let's take a look.

What follows is a country-by-country analysis, including our current investment rating.

Mexico: In Mexico, the center-right PAN (National Action Party) has theoretically been in power since 2000. In practice, it has proved completely unable to unravel the nexus of leftist and union control left by the 71 years of PRI (Institutional Revolutionary Party) rule that took place from 1929-2000. For example, Mexico's oil sector remains completely dominated by the state controlled Petroleos Mexicanos (PEMEX), and repeated attempts to allow foreign participation have failed - foreign oil companies have been in bad odor in Mexico since the oil business was nationalized by President Lazaro Cardenas in 1938. Thus, Mexico has appalling productivity growth - indeed its productivity is still lower than at the peak of the pre-crisis boom in 1981. A few politically connected billionaires dominate its industry and entrepreneurship is minimal. Avoid.

Argentina: Here was a country that seemed headed toward a free-market-style economy in the 1990s and became a very fashionable investment destination. However, Argentina had the bad luck to have its free-market push coincide with very low commodity prices, so the commodity-dependent Argentine economy did not prosper, and ran up debt until going bankrupt in 2001. Since then, there has been some recovery as commodity prices have soared, but foreign investors have been treated badly and there is little likelihood of any truly successful Argentine private-sector growth stories. Avoid.

Venezuela: As stunning as it sounds, this country has lower productivity today than it had back in 1957; the country was badly run even before Hugo Chavez came to power in 1998. These days, every foreign company is liable to be nationalized. Avoid.

Brazil: This was well run in the 1990s, but entered a crisis in 1998-2002, which led to the election of Workers Party President Luiz Inacio Lula da Silva in 2002 - and almost to bankruptcy. In his first term in office, Lula did a surprisingly good job; he kept public spending down, except for the Bolsa Familia system of payments to poor families who kept their children in school. That was genuinely useful in reducing Brazilian inequality, and only moderately expensive - about 0.5% of Brazil's gross domestic product (GDP). However, in his second term Lula increased public spending excessively, especially in the run-up to the 2010 election, and meddled with property rights in the energy sector. Rousseff, the new president, appears somewhat left of Lula and is a firm believer in government control. Thus, even though Brazil has done well under Lula, that progress is likely to end in a financial crisis - and to lead to meddling in such major Brazilian companies as Vale SA (NYSE ADR: VALE). Avoid for now, though Brazil could well become a "Buy" again if it gets cheap enough - its decline in inequality may make its politics work better in the long run.

The Two Markets to Buy Now
There are two Latin American countries where investment is attractive:

•Chile: The Chilean economy was revolutionized by President Augusto Pinochet in the 1980s, with most major state-owned companies being sold and the world's first private-sector universal pension scheme being introduced. Fortunately, the center-left governments that ruled from 1990-2010 had the sense not to meddle with Pinochet's reforms. What's more, when copper prices rose after 2003, the government used the proceeds of copper sales to form a $19 billion Stabilization Fund, which came in very handy in the 2009 slump. With the new pro-business President Sebastian Pinera, Chile now looks to have major growth potential, particularly during this period of high commodity prices. Chile's response to the earthquake and the miners' rescue demonstrates that, in contrast to most of Latin America, Chile is an open society where both public and private sectors function at a high standard. Buy.
•Colombia: Was recently included in the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa) collection of emerging markets that are expected to follow the BRICs into rapid growth. (Chile is not a CIVETS, but even though it is still quite poor it can be regarded as a super-CIVETS, like say South Korea). The successful presidency of Javier Uribe overcame Colombia's guerilla problem, or at least lessened it, and set Colombia on a path of free-market growth. Under the new president Jose Santos those policies can be expected to continue. Colombia will additionally benefit if the new U.S. Congress ratifies the U.S.-Colombia Free Trade Agreement, signed in 2007 but held hostage by the protectionist Democrat majority. Also, like Chile, it has a huge bounty of natural resources, including major offshore oil deposits. Buy.

Actions To Take: When it comes to Latin American investing, let politics be your guide.

Several of the countries - including longtime "BRIC" darling Brazil - aren't as alluring as they once were.

However, the encouraging thing is that the two best countries - Chile and Colombia - are genuinely attractive investments; in fact, they can stand up to virtually any other market opportunity anywhere else in the world.

[Editor's Note: If you have any doubts at all about Martin Hutchinson's market calls, take a moment to consider this story.

Three years ago - late October 2007, to be exact - Hutchinson told Money Morning readers to buy gold. At the time, it was trading at less than $770 an ounce. Gold zoomed up to $1,000 an ounce - creating a nice little profit for readers who heeded the columnist's advice.

But Hutchinson wasn't done.

Just a few months later - we're now talking about April 2008 - with gold having dropped back to the $900 level, he reiterated his call. Those who already owned gold should hold on, or buy more, he said. And those who failed to listen to him the first time around should take this opportunity to remedy their oversight, he urged.

Well, we all know where gold is trading at today - at about $1,410 an ounce.

For investors who heeded Hutchinson's advice, that's a pretty nice neighborhood.

Investors who bought in after his first market call are sitting on a profit of as much as 83%. Even those who waited, and bought in at the $900 level, have a gain of about 60%.

But perhaps you don't want just "one" recommendation. Indeed, smart investors will want an ongoing access to Hutchinson's expertise. If that's the case, then The Merchant Banker Alert, Hutchinson's private advisory service, is worth your consideration.

For more information on The Merchant Banker Alert, please click here. For information about Hutchinson's new book, "Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System," including how to purchase the book at a 34% discount, please click here.]

Source : http://moneymorning.com/2010/11/10/...

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in