LatAm report 1: the investment overview
In its latest Vision report, State Street examines the potential presented by five major markets in Latin America. Through the next five days, InvestmentEurope will focus on one market each day, with a macro economic round-up, a view of local investment infrastructure, and an opinion from a fund manager focused on the market. But first, State Street gives an overview of the region.
The large, concentrated asset pools in key Latin American markets, and their strong growth prospects, have the potential to create significant opportunities for global asset managers and service providers, according to State Street’s latest Vision report entitled “Latin America’s Five Major Economies”.
The economies of the five countries covered by the report – Brazil, Mexico, Chile, Colombia and Peru look very different from the 1980s and 1990s, and all have benefited from enormous changes that have given them greater resilience to adverse shocks.
“Skyrocketing” demand, notably from the Asia-Pacific region, for the commodities they export has spurred domestic economic growth, and pulled in “significant” capital flows via foreign direct investment (FDI) and equity portfolio investment, as global investors seek higher returns and yields, the report said.
Wealth creation in these and other Latin American markets is contributing to a projected five-year compound annual growth rate of 15% for the $2.2trn in institutional assets owned by Latin America’s central banks, sovereign wealth funds, pension funds and mutual funds. Half of these assets are represented by the $1.1trn Brazilian onshore fund industry according to State Street estimates.
It says the three main factors bolstering the outlook for the “major five” in the region are rising demand for commodities, increased depth of local financial markets and declining inflation.
Latin America has a long history of exporting natural resources such as copper, gold, oil, natural gas, iron ore, steel, silver and tin all over the world. Rapid economic growth in China has provided a particular boost. Brazil, a net exporter of minerals and agricultural products, now exports more to China than to the US.
The influx of foreign capital into the major five has been encouraged by a number of factors, including interest rates nearing zero and quantitative easing in the US, making the prospects of a higher yield on investments in select Latin American markets appear attractive, the State Street report says.