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By Emma Wall| 11-13-2017 10:00 AM

BlackRock: Latin America Will Rally 20%

BlackRock fund manager Will Landers says political reform and economic strength should lead Latin America stock markets to rally considerably over the next 12 months

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Emma Wall: Hello and welcome to the Morningstar Series "Why Should I Invest With You?" I am Emma Wall and I'm joined today by Will Landers, Manager of the BlackRock Latin American Trust (BRLA).

Hi Will.

Will Landers: Hello.

Wall: So, this week marks the one-year anniversary of the US electing Donald Trump as President. And you are a Latin American investor. How much does what happen in North America affect investment opportunities in Latin America?

Landers: For Latin America overall, it's not as important as one would think, but obviously for Mexico its very important. Mexico being part of NAFTA, US is their biggest trading partner. NAFTA is important for what we see in term of manufacturing growth in Mexico.

We saw when President Trump was first elected the peso shoot up in the 20s, came back down and then the recent rounds of negotiation with NAFTA have caused more volatility around the Mexican peso. And really the worry is that it could actually have an impact on the Mexican election next July as well.

So, for Mexico it is very important to see what direction the U.S. is going to take in terms of negotiations around NAFTA. Immigration seems to be a little less of an issue at this point. But I think when you look at where the trust is invested where our biggest over weights are which are Brazil and Argentina. The U.S. is not as big or it's not really part of the investment story there.

Wall: I think that’s an important point to make, because sitting here a year ago we could have been quite sceptic about the outlook for Latin America in terms of returns, but actually it's been a pretty good 12 months, hasn't it.

Landers: Absolutely. I mean we are up over 20% and our returns as a region Brazil, Latin America as an asset class works when Brazil's working. Unfortunately, the other markets aren’t big enough, liquid enough, deep enough to really cause investors to get excited about Latin America if Brazil is in a tough situation.

And we saw that in the beginning through really the impeachment of President Rousseff last year, but that was a major turning point for Brazil and it was a major turning point for Latin America as an investment opportunity.

Wall: And then looking forward then can we expect another 20% in the next 12 months?

Landers: I believe so, I think so. And I hope at least that if not more. What we are seeing we're in the early stages of economic recovery in Brazil. Interest rates have been cut in half almost from 14.25% to 7.5% they should finish the year at 7%. They should be in the 6s by sometime early in the beginning of 2018. Nobody had that in their forecast. I think with that GDP forecast of 2% are too weak or too small. We're going to have closer to 3%, I think.

So, with that I think Brazil is going to have a very strong year and with this economic recovery in place it's very hard to see how next year's October Presidential election is not going to elect a government that’s going to give continuity to the recovery programme.

So, then we could be talking about Brazil for six years, having orthodox economic policies and having the country finally getting back to what we saw in the early 2000s and not really needing the commodity boom that we had in early 2000s to make the story work.

Wall: And reform is key when investing in any emerging market. But it has been a good tailwind in Latin America hasn’t it?

Landers: Absolutely starting with Brazil again where you had major reforms going on in the middle of the political turmoil, both on the fiscal side as well as just making Brazil more competitive, getting rid of some of the subsidies on the lending side which made the central bank less effective on its monetary policy. Labour reform was something that people didn’t expect to see happen at this point.

Pension reform is the next one that we need to get done and obviously there has been a lot of talk over the last few days about that. But President Temer is behind that. So, with that I think that’s setting the pace for Brazil to be able to grow on a consistent basis without inflationary pressures.

Then when we talk about Argentina which is off benchmark, but very important in terms of our investments in the trust today. President Macri got a huge boost from the mid-term elections a few weeks ago. And that’s given him the strength to continue with the reform process and getting Argentina back to being, a normal investment opportunity.

Wall: Plenty of reasons to be positive then.

Landers: Absolutely.

Wall: Will thank you very much.

Landers: Thanks.

Wall: This is Emma Wall from Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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