International investors may want to consider a region-specific play like the iShares Latin America 40 ETF (ILF).
“Latin America is on the cusp of a multi-year economic boom that will hand huge gains to investors who act now,” wrote John Persinos in an Investing Daily article.
“With a population of about 652 million, Latin America is generally defined as consisting of the entire continent of South America in addition to Mexico, Central America, and the islands of the Caribbean,” Persinos wrote. “Boasting a combined annual gross domestic product (GDP) in excess of 5.8 trillion USD, the region is positioned to thrive in the post-COVID economic expansion.”
ILF seeks to track the investment results of the S&P Latin America 40, which is composed of 40 of the largest Latin American equities. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index.
The ETF is up about 70% the past year.
Persinos noted Latin America’s solid fundamentals. Tailwinds for a growing gross domestic product (GDP) include “a rising (and educated) middle class, dynamic industrial capacity, technological innovation, increasing consumer purchasing power, and high-yielding investments.”
“Research firm S&P Global in late March raised its 2021 GDP growth forecast for the six largest Latin American economies to 4.9%, from 4.1% last quarter, because of better-than-expected performance in fourth-quarter 2020 and an improvement in global growth prospects,” Persinos wrote further. “Major favorable factors include vaccine roll-outs and aggressive global stimulus (see chart).”
Huge Commodities Demand from China
With an economy heavily reliant on commodity exports, Latin America stands to benefit from global demand for raw materials. This is especially the case when it comes to China.
“The Latin American economy is largely based on commodity exports,” Persinos noted. “Around the world, the growing demand for raw materials has been a boon for Latin American commodities producers. The trend will continue as global economic growth picks up speed.”
“Latin America is a direct play on China’s voracious appetite for commodities,” added Persinos. “Infrastructure projects in China, the U.S., and elsewhere will further stoke demand for raw materials. That makes commodities producers with Latin exposure smart bets now.”
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