Asia investment cools down, Latin America heats up

Demographics and an improved investment environment are driving growth in the Latin American economy, according to Itau Asset Management’s lead portfolio manager for Latin American equities Scott Piper, who said a common misconception was that commodities ran the show.

Itau has seeded a new Latin American listed equities fund (Australian Domestic Unit Trust) with $20 million, now open to institutional investors.

Piper said the company chased the “real emerging market stories” in consumer spending, infrastructure, credit, real estate, health, education and other growing consumer markets driven by an emerging middle class, and that Itau normally invested off the index.

Piper said that while the index is commodity-centric and commodities account for 55 per cent, commodities as a percentage of GDP were only 12 per cent.

VIEW ALL

View all

“We think over time the index will look a little bit more like what you see in Australia today, which is better balanced with the economy,” Piper said.

He said Latin American demographics were changing to support a positive investment environment, reminiscent of Asia 10 to 15 years ago.

“There’s going to be a larger pool of capital to invest in equities over time in Latin America, which will reduce volatility and raise multiples of the equity market, and those are all dynamics that are at the early stage in Latin America which are to a large extent played out in Asia,” he said.

The dependency ratio indicates that while populations in Asia begin to age, Brazil’s young population will act positively on economic growth over the next decade, he said.

Piper said Latin American population growth is forecast to grow by 30 per cent over the next 15 to 20 years, with 70 per cent of growth expected from people entering the workforce.

Income distribution is also beginning to change as the middle class grows; from 34 per cent in 2005 to approximately 50 per cent today, he said.

Piper said good growth, low inflation, and a lack of sovereign and corporate debt make Latin America a safe region to invest. He said the investment-led cycle would be a huge source of growth in the region as fixed asset investment is growing at a rate of two or three times GDP.