Technicals Propel LatAm Equity, Says Aberdeen

Though LatAm indices may be down year-on-year and there are some bearish fundamental influences, inflows are supportive for equity, according to major EM investor Aberdeen. “Given the headwinds of slow economic growth and rising interest rates, I wouldn’t be surprised if [the Mexican Bolsa and Bovespa] were down year-on-year,” Devan Kaloo, head of global EM equities at UK-based Aberdeen Asset Management, tells LatinFinance. “But equally probable is that given the ridiculously loose monetary policy we’re seeing in the world today – and the fact that in a relative view emerging markets look better than just about anything else – we’ll probably see more money flood in and the asset classes continue to do quite well,” he adds. Aberdeen has $5.5bn under management in LatAm equity and is overweight Mexico and neutral Brazil. Kaloo views inflation as the biggest threat to the region, given the effect it can have on politics. In its bottom-up company-focused approach, Aberdeen prefers names linked to consumer growth, such as Lojas Renner and Ultrapar in Brazil, and America Movil, Femsa and Banorte in Mexico. He does not like assets dependent on the glut of government spending expected in countries like Brazil. “The IPO bubble of 2007 was extremely healthy for Brazil. This time around with the new deals, hopefully people will be a bit more sensible,” says Kaloo. Aberdeen tends to avoid IPOs, and generally looks to buy companies with established track records. An important distinction in Brazil, he says, is between companies set up by experienced managers delivering performance, and those that are little more than a business plan. Overall, Kaloo says Brazil is one of the strongest long-term stories in EM. He does not expect this year’s elections to cause much volatility. “If the companies on the ground aren’t worried, then we see little reason to be worried,” says the investor.