Investing in Latin America

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This article describes a geographic region that covers various exchanges, currencies, indices and stocks. View articles referencing this region.

 

TOP CONTRIBUTORS

Michael Luddy

Remi Cossart

Latin America is made up completely by developing and emerging markets. The country leading the region's growth is Brazil. About half the countries in the region are classified as lower middle income countries (for example: Peru, Bolivia, Colombia, Panama) and the other half is classified as upper middle income countries (for example: Brazil, Mexico, Argentina, Chile). The largest countries in Latin America are Brazil, Mexico, Argentina, Venezuela, Colombia, and Chile. These economies are driven largely by commodity production like oil, silver, and corn, but growth in services like telecommunications also has a major impact on their economies. Since all of the countries are developing and emerging markets, construction of infrastructure and expanding banking services are characteristic of many of the nations. This is particularly true of Brazil as it is home to the largest steel producer in Latin America as well as the four largest banks.

The nature of most large Latin American companies is to provide basic materials. In the 2007-2008 period, with the dollar depreciating, companies have seen their profit margins affected positively due to increased prices (after exchange).^[1]

Exchange Traded Funds

• SPDR S&P Emerging Latin America (GML)

• IShares S&P Latin America 40 Index Fund (ILF)

Overview

Nominal GDP of Top Countries

Brazil, Mexico and Argentina top the list in terms of total GDP. However, Argentina has the fastest growth rate of the three (and overall).

Exports of Top Countries

Mexico, Brazil, and Venezuela top the list in terms of total exports. Venezuela has a much higher export compared to the others due to its heavy reliance on oil exports.

Labor Force Breakdown of Top Countries

The following chart breaks down the labor force according to the sector.

According to the World Bank, Latin America is supposed to grow 3% next year. This will require somewhere between 350 and 400BB to finance the growth with multilateral lines of credit providing only 10% of this amount. ^[2]

Industrial

Latin America is home to some of the largest mining companies in the world. The region is rich in silver, copper, iron ore, and to a lesser extent, zinc and lead. Rising commodity prices, most notably in silver, have created a lot of wealth in these countries and the mining companies. In addition, steel production is in high demand with the growing infrastructure of the developing nations, in particular Brazil.

Major Companies

• Cia Vale do Rio Doce (RIO) is the 2nd largest mining company in the world and largest in Brazil.
• Gerdau S.A. (GGB) is the largest steel producer in Brazil.
• Cemex S.A.B. de C.V. (CX) is a top cement producer and largest building materials supplier on the planet. It is based in Mexico.
• Grupo Mexico (GMEXICOB-MX) is a mining and transportation company in Mexico.
• Empresas CMPC (CMPC-SN) is a paper and pulp manufacturer in Chile.
• Corporacion Nacional del Cobre de Chile is the largest copper producer in the world. The company is state owned.
• Tenaris S.A. (TS) is the largest steel producer in Argentina.
• Compania Mina Buenaventura, S.A. (BVN) mines precious metals, mostly gold an silver, in Peru.

Agriculture

Latin America is the world's leading producer of coffee, orange juice, sugar, and soybeans. Brazil is the top producer in every one of those categories. Latin America is also a major producer of corn and fruit, such as bananas. Argentina is one of the more agriculturally driven countries in Latin America with about 55% of exports coming from agriculture.^[4]

• Oilseed includes soybeans, sesame, sunflower, cottonseed and other seeds that provide a source of oil.

Major Companies

• Cutrale is the largest orange juice producer in Brazil and the world.
• Cosan Limited (CZZ) is the largest sugar company in Brazil and one of the largest ethanol producers in the world.
• Cresud S.A.C.I.F. y A. (CRESY) is involved in crop production, cattle raising, and milk production. It is based in Argentina.
• Grupo Industrial Maseca (MASECAB-MX) is the largest corn flower producer in Mexico.

Energy

Mexico and Venezuela are both top ten world oil producers and new discoveries in Brazil could launch it in the top ten as well. Venezuela is the most dependent on its oil production - oil accounts for about a third of GDP and over 80% of exports.^[7] Brazil, on the other hand, gets over 90% of its energy from hydroelectric power, and its large soybean production also leads to a large production of ethanol. Argentina gets about 80% of its electricity production from natural gas and hydroelectric power.^[8] Colombia has the largest coal reserves in Latin America.^[9]

Major Companies

• Petrobras (PBR) is the largest oil exploration and production company in Brazil and the largest public company overall in Latin America.
• Empresas Copec S.A. (COPEC-SN) is the largest oil producer in Chile.
• YPF SA (YPFD-BA) is the largest oil producer in Argentina.
• Centrais Eletricas Brasileiras SA (CAIGY), a.k.a. Eletrobras, provides nuclear energy for Brazil.
• MetroGas, S.A. (MGS) is the largest natural gas producer in Argentina.
• Ecopetrol (ECOPETROL-BO) is the largest oil company in Colombia.
• Petroleos de Venezuela is the largest oil producer in Venezuela. It is owned by the Venezuelan government.

Banking

As the economies in the these developing countries start to gain wealth and expand, the banks receive more and more demand. Building the infrastructure increases the number of loans demanded and the growing middle classes are putting more money into the banks. This is best exemplified in Brazil as the country has the four largest banks in Latin America due to its large and rapidly expanding economy.

Major Companies

• Banco Bradesco Sa (BBD) is the largest bank in Brazil and Latin America.
• Banco do Brasil (BBAS3-BR) is the second largest bank in Latin America.
• Grupo Financiero Banorte (GFNORTEO-MX) is the largest bank in Mexico and largest bank outside of Brazil.
• BANCO DE CHILE (BCH) is the largest bank in Chile.
• Banco Macro S.A. (BMA) is the largest public bank in Argentina.
• BanColombia S.A. (CIB) is the largest bank in Colombia.

Telecommunications

Latin America has a mobile phone penetration of 66% as of early 2008 with about 375 million people owning phones in Latin America and the Caribbean.^[12] Penetration in the rest of the world averages around 46%. Latin America is also ahead of the curve in 3G services. Brazil, Chile, Argentina, and Uruguay all have 3G networks offered by their telecom companies.^[13] Brazil is the 5th largest mobile phone market in the world.^[14]

Major Companies

• Tele Norte Leste Participacoes S.A. (TNE), a.k.a. Oi, is the largest fixed line telephone company in Brazil and Latin America.
• America Movil, S.A.B. de C.V. (AMOV) is the largest telecommunications company in Mexico.
• Carso Global Telecom (TELECOMA1-MX) is the another major telecommunications company in Mexico.
• Brasil Telecom Participacoes S.A. (BTM) is a major telecommunications provider in Brazil.
• Compania de Telecomunicaciones de Chile S.A. (CTC) is the largest telecommunication company in Chile.
• Telefonica De Argentina SA (TAR) is the largest telecommunication company in Argentina.
• Telefonica del Peru (TELEFBC1-VL) is the largest telecommunication company in Peru.

Transportation

The largest transportation companies in Latin America are primarily made up of regional airlines. Much of the fleets consist of mid distance planes such as Boeing 737's and short distance planes like prop planes. Countries like Panama and El Salvador serve as major hubs between the US and South America and, as a result, are home to some of the larger regional airlines.

Major Companies

• TAM S.A. (TAM) is Brazil's largest airline.
• Aerovias de Integracion Regional S.A. (AIR-BO) is Colombia's largest airline.
• Grupo Taca is the largest airline in El Salvador.
• Copa Holdings, S.A. (CPA) is one of the largest airlines in Latin America. It is based in Panama.
• Lan Airlines S.A. (LFL) is the largest airline in Chile.

Political Environment

Almost every country in Latin America has a democratic form of government at this point, but that does not mean every country has political stability or is without corruption. Venezuela is run by a socialist party which gets about half its revenues from Venezuela's oil sales. Other countries like Mexico and Brazil have sub par corruption levels, but the general political environments are relatively stable. Political stability helps create confidence in the country in the eyes of foreign investors - Brazil received $37B in foreign direct investment in 2007.

Corruption

References

1. ↑ http://www.ambito.com/noticia.asp?id=496095
2. ↑ http://www.ambito.com/noticia.asp?id=496095
3. ↑ Silverinstitute.org, Silver Supply
4. ↑ Wikipedia:Economy of Argentina
5. ↑ Grains.org, Corn Production
6. ↑ Agriculture, Oilseed Yield, 2004
7. ↑ Wikipedia:Economy of Venezuela
8. ↑ Wikipedia:Economy of Argentina
9. ↑ Wikipedia:Economy of Colombia
10. ↑ Nationmaster.com, Energy, Oil Production, June 2007
11. ↑ Nationmaster.com, Energy, Natural Gas Reserves, July 2005
12. ↑ Budde.com: Latin America, Mobile Market, 2008
13. ↑ Budde.com: Latin America, Mobile Market, 2008
14. ↑ Bharatbookresearch.wordpress.com: Latin American Mobile Communications and Data Markets in 2007
15. ↑ Nationmaster.com, Government, Corruption, July 2005
16. ↑ Nationmaster.com, Government, Corruption, July 2005