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Politically, we are living in a world that is turned upside down and inside out.
Developed markets – the United States, the United Kingdom and Europe – were once the bastions of political stability. But today, poor economic performance and other social factors are driving a wave of populism across the developed world.
From Donald Trump to Brexit to rapidly growing populist parties in every country in Europe, dissatisfaction with the status quo seems apparent.
Political Tide Affects Latin America Investments
But even as this wave of populism grows, the political tide has completely turned in the other direction in Latin America.
This region experienced its wave of populism in the 2000s, with populist politicians being elected in many countries. But it turned out many of these populists were either inept or corrupt or both.
With their economies sliding badly, the electorates in South America have thrown these populists out and elected more centrist political leaders.
A key factor in this change in sentiment are the more than 55 million South Americans that have risen to middle class status over the past decade. They want advancement to continue, and politicians to abandon methods that have failed miserably in the past to lift the economy.
The list of a different type of political leader in South America include:
- Argentina’s Mauricio Macri replacing Cristina Fernández;
- Peru’s Pedro Pablo Kuczynski replacing Ollanta Humala;
- Brazil’s Michel Temer stepping in for the impeached Dilma Rousseff
In a similar vein, the electorate in Bolivia recently turned a thumbs down on a referendum that would have allowed President Evo Morales to seek a fourth term as president.
Add to all these changes the near-ending of the long guerrilla war in Colombia and Cuba’s rapprochement with the U.S., and new life is being breathed into the region.
The shift in political winds is making Latin America investments a key destination for investors’ money.
Argentina Is a Star
So where to invest?
My favorite country, by far, is Argentina. President Macri is making all the right moves.
Repayment on previously defaulted bonds allowed the country to reenter the global capital markets for the first time in 15 years. Argentine debt issues, sold in April, were a smashing success.
The only problem is that there is not a wide choice when it comes to Argentine stocks.
A good choice, however, is Pampa Energia SA (NYSE: PAM). This major electric utility also has oil and gas holdings. It has benefited already from the Macri effect and is up 37% year-to-date.
Andean Countries: Chile, Peru, Colombia
Another three countries worth consideration are Chile, Peru and Colombia.
Like Argentina, the governments there now have sufficient credibility in the marketplace that they are able to raise funds relatively cheaply in the capital markets.
A quick, easy way to invest into these countries is through an exchange traded fund from Global X. It is the Global X Andean 40 ETF (NYSEArca: AND).
As the name implies, this ETF invests into the 40 largest capitalization companies in the three countries. This fund is up 24% year-to-date. Its largest position is the Peruvian financial giant Credicorp (NYSE: BAP).
Political Scandal Rocks Brazil
Finally, we come to Brazil, which has been rocked by a political scandal that is still shaking the nation to its core.
It is still way too early to invest into Brazil in a big way. But there is no harm is owning a blue-chip company like Ambev SA (NYSE: ABEV).
This Brazilian subsidiary of brewing powerhouse AnheuserBuschInBev (NYSE: BUD) is up nearly 30% year-to-date.
When the political firestorm begins to die down, the economy will begin to regain its footing. Then a retailer like Companhia Brasiliera de Distribuicao (NYSE: CBD) will become more of an investment than a speculation that it is now.
Bottom line – as weird as it sounds, South America is turning into a bastion of political stability in a world gone mad. Investors who ignore this region will miss out on a real money-making opportunity.