Equities begin to play catch-up
Latin American equities have become unfashionable as EM investors focus on thriving tech companies elsewhere. And while the region has some unappreciated structural strengths, if the few tech companies that do emerge head to New York, it could compound the problem.
While billions of dollars have been cascading into Latin American fixed income portfolios, equity investors have been a little more hesitant in increasing exposure to the region.
Tim Love, investment director at asset manager GAM, believes that many investors are not yet ready to move down the risk spectrum from fixed income to equity.
“The concept of absorbing EM equity volatility has… been too much of a stretch for some,” he says, “with some preferring the absolute or even leveraged exposure to EM [emerging market] credit and/or EM sovereign debt due to lower perceptions of risk.”
There are, however, braver investors who have been seeing an opportunity in Latin America’s equity markets in the last couple of years.
“Investors started looking aggressively at the region again towards the end of 2016, and we saw the rebirth of the market throughout 2017,” says Marcio Souza, head of equities for Latin America at Santander in New York. “We saw a large pool of money coming in to finance companies that were looking to restructure as well as for those looking for capital to finance another level of growth.”
I have been participating in EM equities for almost 30 years and I can’t remember a time when investors are paying less attention to Latin American equities than they are right now - Stephen Dover, Franklin Templeton
Souza says he noticed strong passive flows coming into both EM and Latin America during 2016, but the story has become more focused on stock picking.