With the continuation of the debt crisis in Europe and the domestic problems facing the United States, the equity markets have fallen as investors have sought safe havens. Riskier assets such as commodities and funds like the PowerShares FTSE RAFI Emerging Markets (NYSE:PXH) have trickled downwards as the broad sell-off takes place. However, for those investors who can look beyond Wall Street's short-sightedness, some bargains are beginning to emerge. Latin America represents one such long term bargain. Its nations feature a host of attributes that make the region a desirable investment destination. With the markets heading downwards, now may be the time to add Latin America to a portfolio.
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South America could be one of the best regions for investors looking for long term growth. Overall, the International Monetary Fund estimates that Latin American will expand by 6% throughout 2011. Its rich abundance of natural resources is helping fuel that growth. Demand for energy, materials and agriculture based commodities continues to rise at exponential rates. Some analysts see Latin American emerging markets outperforming Asian ones as they have the basic materials needed for future growth. In an effort to fill its growing commodity needs, China has partnered with Latin American nations through large loans, investments and other financial agreements. Beijing has secured more than a decade's worth of oil from Venezuela and Brazil, and supplies of wheat, soybeans and natural gas from Argentina. American companies are following suit. Agricultural firm, Archer Daniels Midland (NYSE:ADM) recently began building a new port in Uruguay that it will use to export corn, soybeans and wheat.
The world's thirst for commodities is also boosting incomes in the region. These commodity-dollars are helping spur the expansion of infrastructure and consumerism across the nations. Latin America already features some of the highest broadband and cell phone penetration rates in the emerging world. Ultimately, domestic consumption will fuel future GDP growth. Over the last five years, Colombia's middle class has grown by more than 30%. This echoes similar results for Brazil and Chile. According to a recent survey by AT Kearney, Brazil now ranks as the most attractive emerging market country for retailers, besting even China.
Finally, Latin America's financial system is strong. A combination of strong international reserves and low debt has helped Latin countries avoid many of the problems facing Europe and other developed countries. Mexico recently recorded its fifth consecutive month of trade surpluses, reaching nearly $3.23 billion and many nations within Latin America have investment grade debt ratings.
Adding South America
While inflation still poses a risk for the region, the longer term picture for South America is bright. Funds like the SPDR S&P Emerging Latin America (NYSE:GML) and Market Vectors LatAm Small-Cap Index ETF (Nasdaq:LATM) make adding wide swaths of the region easy. However, they are not the only games in town.
30 new shopping malls are expected to open next year in Brazil, after 25 openings this year. The Global X Brazil Consumer ETF (NYSE:BRAQ) offers a targeted play on its consumers. The fund follows a basket of 28 different consumer stocks such as Brasil Foods S.A. (Nasdaq:BRFS). The fund should benefit as consumerism drives future GDP growth in the nation. In addition, homebuilders Gafisa S.A. (NYSE:GFA) and Homex (NYSE:HXM) could be good bets as more Latin American citizens become homeowners for the first time.
Finally, some of the biggest growth in Latin America could come from the periphery nations outside of Mexico and Brazil. Peru, Chile, Uruguay, Colombia and Argentina are all beginning their long term growth and can be accessed through funds such as the iShares MSCI Peru (EPU), Global X FTSE Argentina 20 ETF (Nasdaq:ARGT) and Market Vectors Colombia ETF (Nasdaq:COLX).
The recent sell-off of riskier assets has given investors a golden opportunity to add Latin America to a portfolio. The regions abundance of commodities and growing consumer base makes it an ideal long term investment option. The previous exchange traded funds along with the iShares MSCI Mexico (NYSE:EWW) are great ways to add the region. (For more, see Investing In Brazil 101.)
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