Peruvian stocks have outperformed everything else in Latin America so far this year. However, traders who chalk up the rally to the country’s traditional gold and copper wealth would be wrong.
Bloomberg prints a fairly negative case for many investors in the emerging markets highlighting the risks to investment in state-controlled companies across the BRIC nations. All global investors should at least be aware of the issues at stake.
Peru is by far the smallest economy within the investable region and much more affected by commodity prices, particularly copper, gold and crude oil. Pressure on the government for increased stimulus may come as demand from China, and other global importers, weakens in the first half of 2012.
While investors should not be expected to forecast scenarios for the unknowable “black swan” events, global economic trends and an eye on the global news can help hedge the risk of systemic catastrophe in your portfolio.
While investment in regional funds and country-specific ETFs can help investors gain exposure to the strong growth drivers in Latin America, a selection of individual equities will further enhance portfolio return.
On Today’s Trading the Globe, we point out the obvious: Brazilian stocks are now cheaper than just about anything else out there.
Global miners that call Peru home or at least earn a significant chunk of their earnings there have taken a huge hit after the election.
Traders around the world will likely spend this week glued to macro data and political news, but those willing to look at individual stocks can still find plenty to occupy their attention.
Investors have plenty of regional funds to pick from these days, but it is somewhat surprising that there is still only one truly global “frontier markets” ETF out there.
FRN (quote) hit the ground in June 2008, when the wheels started coming off the global economy.
That somewhat inauspicious start date leaves it with 10% lifetime losses, but YTD performance has been an extremely respectable 20% — making it one of the top globally diversified funds out there.
The secret of FRN’s success has been solid exposure to the world’s top-performing markets, which generally happen to be off the beaten path as far as BRIC-heavy portfolios are concerned.
A full 57% of the portfolio is in just four markets of the Latin periphery: Chile, Colombia, Argentina and Peru.
With the Chilean market on a record-breaking trajectory this year — and accounting for 31% of FRN — and Colombia (12%) holding its title of favorite among many single-country investors, it is no wonder that FRN is delivering the goods.
Holdings tend to be the large-cap names in each country with a strong bias toward resource and banking plays: EC (quote) and CIB (quote) in Colombia; ENI (quote), EOC (quote), SQM (quote), LFL (quote), SAN (quote); BVN (quote) in Peru.
In theory, an investor could simply buy ADRs or country-specific funds to get exposure to these big Latin stocks.
Much more than a Latin fund
But where FRN really shines is in the other 48% of the portfolio, which is currently allocated to a band of markets ranging from Nigeria up through Central Europe and the Middle East and on to Kazakhstan.
With very few (and thinly traded) exceptions like Orascom Telecom (ORSTF, quote), these companies are not available to U.S. investors.
In many ways, these countries are the BRICs of tomorrow. If half of FRN is weighted to Brazil’s less well known Latin counterparts, the weighting to Poland, the Czech Republic, Ukraine and Georgia provides a much less oil-driven counterweight to Russia-heavy “emerging Europe” portfolios.
Pakistan is a way to play a vast economy very similar to the old India that is already fast disappearing under the pressure of modernization and vast investor capital.
While specialized portfolios provide access to Africa and the Middle East, FRN is the only ETF out there that gives investors a way to play them all at once.