LatAm ETFs Look to Rebound in 2014

ETF Trends

This is how bad things were for exchange traded funds tracking Latin America last year: Of the single-country funds, only the Global X FTSE Argentina 20 ETF (ARGT) posted a gain.

The iShares MSCI Mexico Capped ETF (EWW) was the next best performer of the group with a loss of just under 2%. EWW’s 2013 performance is particularly disappointing when considering U.S. stocks surged, but then again, the Mexico ETF looked stellar in comparison to the iShares MSCI Chile Capped ETF (ECH) and the iShares MSCI All Peru Capped ETF (EPU) , which lost an average of 24.6%. [Worst Global Markets by Single-Country ETFs]

With 2013 in the books, some investors see bargains in Latin America. Getting on a consensus on which markets offer the most opportunity is, however, another matter. Although growth there is projected to be just 2.5% this year, some investors still like Brazil, Latin America’s largest economy.

The forward price/earnings ratio for Brazil’s Ibovespa index was at 10.7 on Dec. 31, down from 19.2 a year earlier, compared with 15.4 for the S&P 500 on the last day of 2013, the Wall Street Journal reported citing FactSet data.

The iShares MSCI Brazil Capped ETF (EWZ) lost almost 18% last year, good for the worst performance among the four major single-country BRIC ETFs. Despite the low valuations, Brazil has still drawn some tepid calls. Last month, BlackRock lowered its view on the country and some investors are concerned that a late-starting Carnival, the World Cup and national elections could hinder, not help, economic output. [Calendar Issues for Brazil ETFs in 2014]

“Peru is a favorite among the investors and analysts,” according to the Journal, but a legitimate rebound in Peruvian shares will likely be tied to a rebound in precious metals prices. As Peru is the world’s largest silver producer and a major gold producer as well, EPU is heavily allocated to the materials sector, making the ETF vulnerable to the whims of the spot market for those metals. [This Chart Explains Why Gold Moves the Peru ETF]

Some money managers have also started nibbling at LatAm ETFs with EWW being a favored destination. Some professional investors have been attracted by the allure of market friendly reforms promise to make the country’s economy more globally competitive and attractive to foreign investment.

There are dissenting views on Mexico as well. BlackRock is underweight on Mexico as it is on Brazil, but J.P. Morgan has an overweight rating on Mexican equities. [A Fiesta Could Await the Mexico ETF in 2014]

Chile and Colombia are each expected to see economic growth increase this year from last year’s levels, the Journal reported.

iShares MSCI All Peru Capped ETF

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EPU

 

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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