The document discusses opportunities in Latin American and emerging markets. It notes that recent adjustments in currencies and stock prices are healthy and help avoid distortions. While markets have adjusted, Latin America's economic fundamentals remain strong, with young populations, low inflation, moderate growth, and manageable debt levels. The diversity of industries in Latin America like commodities, manufacturing and services provides opportunities for investment.
LATAM and EMERGING MARKETS, opportunities in changing times
1. LATAM and EMERGING MARKETS,
opportunities in changing times
JOAQUIM LEVY
Lima - September, 2013
2. 2
Chile
Colômbia
Áfricado Sul
México
Brasil
Turquia
Índia
Indonésia
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
0 1 2 3 4 5 6 7
VariaçãodasBolsas
Moedas e Bolsas dos países emergentes (base 31/dez/12 =100)
Peso Chileno
Peso Colombia
Zar Africa do Sul
Peso México
Real Brasil
LiraTurquia
Rupia IndiaRupia Indonesia
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
0 1 2 3 4 5 6 7
DesvalorizaçãodasMoedas
Déficit em Conta Corrente
(% PIB)
Currencies and Equity Indexes* – Jan-Sept 2013
Current Account Deficit (% GDP)
* Equity indexes in local currency
soles
Peru
Latam x Other Emerging:
currency more stable
more adjustment in equities
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201 3: a year of transition, with impact on emerging markets
4. 4
Fund Forum Latam
November 2012
The Global Crisis and Latin America
Outperformance or Short-Lived Decoupling?
Economic Outlook:How Is Latin American Region Facing In the Global
Context and How Much Has the Euro and US Crisis Impacted the
Regional Outlook?
Fernando Honorato Barbosa
Chief Economist
Executive General Manager
Not so much… if we anticipate and understand the markets
BRAM presentation and cover of a
major business newspaper in
Brazil… a year ago!
Swings in prices are
natural in public markets
and in funds with daily
NAV – it may be the cost of
transparency
8. 8
Source: Bloomberg, JP Morgan
When bonds adjust, those with higher yields may recover quicker
CEMBI investment grade yields by region (%)USD performance against major currencies(ytd)
CEMBI EMBI
Corporate Sovereign
South Africa 45,52% 48,94%
Latin America 44,51% 51,16%
Asia 57,60% 48,73%
EMEurope 61,38% 50,22%
Treasury (7-10y) 54,00%
Bonds’ Performance 2007-2013
Latam
9. 9
Source: JP Morgan CEMBI, as of 30th August, 2013
Latam USD Bonds have deep markets and comprise strong companies
USD bn Market Cap
20%
15%
11%
8%
6%
5%
5%
3%
3%
3%
21%
4.6
4.2
5.2
3.8
6.4
5.9
5.5
6.6
6.1
7.3
6.5
$17
$18
$23
$33
$33
$42
$54
$76
$100
$136
0 20 40 60 80 100 120 140 160
Others
Singapore
Qatar
UAE
Korea
India
Mexico
Hong Kong
China
Russia
Brazil
Top 10 Africa Asia Europe Latin America Middle East
% TotalAvg Yield %
10. 1010
US recovery: the engine beneath the changes in market conditions
50.0
50.8
55.7
47.0
49.0
51.0
53.0
55.0
57.0
59.0
61.0
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
PMI: Desenvolvidos, Emergentes e EUA
Emergentes Desenvolvidos ex EUA EUA
3.8%
3.3%
2.8%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
2014Q1
2015Q1
% aa
Simulações - Treasury 10 anos
PIB = 3,0% PIB = 2,0% PIB = 1,0%
Projeção
10y US Treasury Yields
PMI US, Developed & Emerging
135.7
146.1
138.0
144.3
123
128
133
138
143
148
jan-01
jan-02
jan-03
jan-04
jan-05
jan-06
jan-07
jan-08
jan-09
jan-10
jan-11
jan-12
jan-13
Pessoal Ocupado
(milhões - dessazonalizado)
Fonte: Bloomberg
3500
4500
5500
6500
7500
8500
9500
10500
11500
mar-94
set-94
mar-95
set-95
mar-96
set-96
mar-97
set-97
mar-98
set-98
mar-99
set-99
mar-00
set-00
mar-01
set-01
mar-02
set-02
mar-03
set-03
mar-04
set-04
mar-05
set-05
mar-06
set-06
mar-07
set-07
mar-08
set-08
mar-09
set-09
mar-10
set-10
mar-11
set-11
mar-12
set-12
mar-13
EUA: Produção e Importação de Petróleo
(Barris/Dia)
Produção Importação
Million of Jobs in the US
Oil production and imports
11. 1111
How does LATAM fare against other emerging markets?
Median Age
Population
(2010)
Fiscal
Deficit
(% GDP)
- 2012
Current
Account (%
GDP) - Latest
Data
GDP (%) -
2012
GDP (%) -
2013
CPI (%) -
Latest Data
Benchmark
Interest Rates -
Latest Data
Government
Expenditures (%
GDP) - 2012
Brazil 29,8 -2,2 -3,2 0,9 2,3 6,1 9,0 38,6
Colombia 28,6 -1,9 -3,5 4,0 4,1 2,3 3,3 18,0
Chile 33,0 0,6 -4,0 5,6 4,4 2,2 5,0 21,4
Mexico 27,7 -2,4 -1,3 3,9 2,3 3,5 3,8 20,0
Peru 26,7 1,9 -3,5 6,3 5,5 3,3 4,3 19,7
China 36,3 -1,8 2,4 7,8 7,5 2,6 6,0 24,4
India 26,7 -7,2 -5,1 5,0 5,1 9,5 7,5 28,3
Indonesia 28,9 -1,8 -3,3 6,2 5,8 8,8 7,3 18,0
Poland 39,1 -3,9 -2,8 1,9 1,1 1,1 2,5 42,3
Russia 38,8 0,4 3,0 3,4 2,3 6,5 8,3 36,5
Turkey 29,2 -2,0 -6,6 2,2 3,6 8,2 4,5 39,2
South Africa 25,5 -4,9 -6,5 2,5 2,2 6,4 5,0 38,5
Sources: The Economist, Bloomberg, S&P
*
*
*
*
LATAM stands out for:
Young population
Good Fiscal
Low inflation
Current Account in line
Moderate Growth
Small public sector
12. 1212
Debt in LATAM is as good as elsewhere (or better)
*
* * * *
Colombia Mexico Brazil Peru Chile Turkey Russia S. Africa Poland Indonesia Índia China
Rating (S&P) BBB BBB BBB BBB+ AA- BB+ BBB BBB A- BB+ BBB- AA-
Public Sector
Ext. Debt / GDP
12,6 10,7 5,0 13,2 9,4 13,1 13,5 18,7 30,3 14,4 6,1 -
Public Sector
Ext. Debt /
Reserves
132,9 82,0 29,9 43,1 59,9 104,9 57,8 174,0 155,4 111,8 43,8 -
External Debt (%
Reserves)
225,2 227,1 121,7 95,7 279,8 342,8 133,5 333,9 363,0 222,7 148,1 22,3
External Debt (%
GDP)
21,3 29,6 20,4 29,3 43,9 42,7 31,0 35,8 70,8 28,6 20,6 9,0
Short-Term Ext.
Debt (% of total
ext. debt)
14,2 21,0 7,4 14,6 19,4 29,3 13,0 20,3 19,2 17,8 23,5 73,4
Govt Debt (%
GDP)
32,2 28,7 58,7 19,8 11,9 36,1 10,8 40,1 55,6 23,6 68,3 29,4
Sources: S&P and Moody's (2012)
Latam CEEMEA Ásia
12
13. 13
Brasil 50-60%
México 20%-24%
Chile 8-12%
Peru 2-5%
Panamá 0-2%
Colômbia 2-6%
Typical allocation of BRAM’s LATAM
Equities Fund
(underweight Brazil
vis-a-vis MSCI)
Latam: diversity in commodities,
manufacturing and services sectors
Pacific Alliance/MILA and BRAIN can
help providing liquidity and a common
platform, ATTRACTING TRADING TO THE
REGION
A “LATAM passport” would help balance
market weights across the region
Democracy and Commitment to the Market are transforming the Region
Correlation of Stock Prices 2003-2013
0,70
0,80
0,90
1,00
MEX COL CHL BRZ
Brazil
Peru
14. 14
Conventional Perception Reality
A Commodity-based Economy Service-based Economy
Highly dependent on Exports to
China
Exports are 12.5% of GDP, and exports to China account for
18% of exports (< 2.5% of GDP)
Fiscal fragility Primary surplus, total public debt < 60% of GDP (including
subnational debt), international reserves of US$300+ billion
Credit / Property Bubble Total bank credit/GDP of 52% x 100%+ in OECD countries
NPLs at 7% for households and 4% for Corporates.
Stock of mortgage loans < 5 % of GDP
Banks’ external liabilities account for 6% of GDP
Low-investment country Above-average investment in machinery & equipment, a gap in
infra-structure and housing, being filled by the private sector
through concessions and more corporate bonds (“12.431”)
Lack of Savings First-rate Pension Plans and individual savings schemes (PGBL)
Negative Sentiment towards
Emerging Markets
Overall improved sentiment towards global equities can offer
attractive buy opportunities
Brazil from the perspective of a USD 120+ billion AUM Asset Manager