Filed Under:
Tickers in this Article: ILF, GML, ECH, EPU, VCO, BVN, SCCO, EWW, EWZ
Brazil, and to some extent Mexico, make up the most of investors Latin American holdings. For example, iShares Latin America 40 Index (NYSE:ILF) counts nearly 88% of its holdings in these two countries. Abundant natural resources, burgeoning middle class and strong robust trade agreements are hallmarks of the two nations and help drive the investment thesis. While these two nations are a big part of the continents' overall GDP, there are several other countries that will do your portfolio some good. By ignoring them, investors maybe sacrificing gains. IN PICTURES: How To Make Your First $1 Million

Seeing the Whole Picture
Latin America has managed, as a whole, to avoid the worst of the financial crisis. A combination of strong international reserves, low debt and a financial system that was not exposed to toxic assets or reliant on foreign funding helped steer its ship past the major icebergs. The region is recovering rather quickly, as governments enact prudent growth-oriented economic policies. Rising commodity prices and a continued interest from foreign investors helped push the economies over the top. Analysts from Fitch expect economic growth in the region to recover to 3.6% in 2010, up from the negative 2.9% in 2009. A total population of over 571 million residents, and a combined GDP of $6.096 trillion, makes the region the second largest economy on the planet if unified. This sort of economic power makes it necessary for investors to add the region to a long term portfolio.

Adding Latin America
A broad based exchange traded fund such as the SPDR S&P Emerging Latin America (NYSE:GML) can be a good choice for some investors, but as with ILF, Brazil and Mexico make up the bulk of the fund. It's usually advantageous to add single-country ETFs to help smooth out weightings in a portfolio. There are plenty of ETFs that focus on individual nations within the region.

Chile's economy could almost be seen as a proxy for the copper market, supplying nearly one-third of government revenue. However, despite this dependence on exports, Chile escapes the volatility normally found in resource exporting economies. Using far-sighted account management, the government banks extra copper revenues during good times and saves them for when prices fall, as with the recent financial crisis. Chile's balance sheet is also conservative by comparison. National debt amounts to only 9% of GDP, compared with nearly 47% for Brazil and 43% for Mexico. Investors can access Chile through one of its ADRs, such as wine maker Vina Concha y Toro (NYSE:VCO), or add the whole market via the iShares MSCI Chile (NYSE:ECH).

Home to the former Inca Empire, Peru still hosts the 45th largest economy in world. As a leading producer of gold, copper, lead and zinc, Peru has seen increasing revenues for its products as the prices of commodities have risen. Recent debt upgrades by Moody's for Peruvian bonds to investment grade, have helped with increases in foreign investment. The iShares MSCI All Peru Capped Index (NYSE:EPU) gives investors a chance to access this growing market. Investors should take note that the fund is materials heavy, making up nearly 65% of total holdings. Gold miner Compania de Minas Buenaventura (NYSE:BVN) and copper play Southern Copper (Nasdaq:SCCO) are top holdings at about 35% of the fund.

Investors wanting more of "frontier" play on Latin America can add Columbia to a portfolio via the Global X InterBolsa FTSE Colombia 20 ETF (NYSE:GXG). The nation is the smallest and most volatile on this, and should be used long term hold.

Bottom Line
Brazil and Mexico get all the interest from investors when focusing on Latin America. However, as a whole, the region has great potential beyond those two nations. Chile and Peru represent the up-and-coming economic super powers on the continent. Investors would be wise to focus some of their attention to these countries either through their representative ETFs or ADRs such as Chilean Utility Enersis (NYSE:ENI). (For more stock analysis, take a look at America's Top Dividend-Paying Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center