Investing in Latin America
One of the appeals of investing in Latin America is that the market is easy to access on US exchanges. Unlike other frontier and emerging markets, in countries like Africa and Asia, you can invest in a wide variety of ETFs and ADRs in these markets. Investing in these products can save you the hassle of opening a brokerage account in another country. Moreover, countries like Brazil have over 30 different ADRs, so you can focus on a specific stock or sector instead of buying an ETF.
Valuation in this region is very compelling, as some of the largest countries in the region are trading at attractive single digital PE levels. It is highly ideal for investors to take advantage of the region’s discount to MSCI Emerging Markets.
Overview of Region
Latin America is a combination of Central America, South America, and the Carrieban, and contains over 20 countries. It can be difficult to access the capital markets in some of these countries, but other markets are still easy to access. Many countries in this region are very attractive investment destinations and are poised to benefit from higher commodity prices.
MSCI classifies Brazil, Chile, Colombia, Mexico, and Peru as emerging markets. Various emerging market funds, such as the iShares Latin America 40 ETF ( ILA) primarily invest in these countries.
Countries to Consider
At the moment, I am currently focusing the vast majority of my research on Chile, Colombia, and Brazil. I believe that these markets offer the best risk/reward potential at the moment. These markets all trade at very compelling valuations at the moment, and can benefit from higher commodity prices this decade.
Peru: I am avoiding coverage of Peru for the time being, mainly due to political risks.
Mexico: I am still bullish on Mexico, but do not cover this market as I believe there is stronger value in some of the smaller emerging markets in Latin America.
Colombia ETFs and ADRs
ETF: The Global X MSCI Colombia ETF ( GXG) is a solid option for investors who want exposure to Colombia’s stock market. This is a better bet as some of the Latin American ETFs do invest in a large % of their assets in Colombia. Moreover, you can also invest in the iShares MSCI Colombia Capped ETF.
ADRs: There are currently 9 Colombian ADRs, including three that trade on the NYSE. I have spent a lot of time covering two of Colombia’s top banks, including Bancolombia and Aval Acciones Y Valores.
Chile ETFs and ADRs
ETFs: The IShares MSCI Chile Capped ETFs is one of the best investment products that provide investors with exposure to Chile’s stock markets. However, this is one of several ETFs out there that invests in Chilean equities.
ADRs: I have spent a lot of time covering banks in Chile, including Banco de Chile and Itau Corpbanca. These are long-term, stable bets, which currently pay a very attractive dividend yield.
Brazil ETFs and ADRs
Brazil has the most options available for investors, in terms of ADRs and ETFs.
ETFs: At the moment, my favorite Brazil ETF is the iShares MSCI Brazil Capped ETF. However, Brazil also has a variety of other ETFs, including ETFs that focus on small caps. One of the reasons I am hesitant about recommending ETFs in Brazil is that there are so many ADRs available.
ADRs: There are currently 29 ADRs that trade on the NYSE. US retail investors can access these companies and typically do not pay any trading fees.