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Demystifying the Investment Landscape in Latin AmericapThomas BoyleSenior Vice President, Portfolio Manager/Analyst
changes in government administration, and economic and monetary policy. Emerging market securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging market countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in emerging market countries.The securities and/or information referenced should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any of the referenced securities were or will prove to be profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein.
Agenda
• Macroeconomic backdrop
• Market structure and performanceMarket structure and performance
• Country-specific insights
• Opportunities and risks
Lazard Asset Management2
The Macroeconomic and Demographic Landscape
Mexico
Haiti
HondurasPopulation2011 GDP per capita GDP Growth (%) Honduras
Colombia
Venezuela
Ecuador
T T
Guyana
Suriname
MSCI EM Latin America Constituents
Median Age
Population as of 2010 (million)
per capita (USD,
thousand)
( )
2012E 2013E 2014E
Brazil 29 193.3 $11.6 2.9 4.5 4.0
Chil 31 1 1 $16 1 0 4 4 2
Peru
Ecuador
Brazil
Bolivia
Chile 31 17.1 $16.1 5.0 4.5 4.2
Colombia 28 45.5 $10.0 5.0 5.0 4.5
Mexico 27 112 3 $15 1 3 8 3 5 3 0
Argentina
Chile
Paraguay
Uruguay
Mexico 27 112.3 $15.1 3.8 3.5 3.0
Peru 26 29.5 $10.0 5.5 7.0 6.0
MSCI Latin America1 28 397.7 $12.6 3.5 4.4 3.9
A f D b 2011
Falkland (UK)
United States 37 309.3 $48.4 2.1 2.3 2.9
European Union 41 501.1 $39.6 .03 1.3 1.9
Lazard Asset Management3
As of December 20111 GDP per capita and GDP growth aggregates calculated as a GDP-weighted averageEstimated data are not a promise or guarantee of future results and are subject to change.Source: Haver Analytics, The World Factbook, JP Morgan, International Monetary Fund World Economic Outlook, Eurostat
Demographics Are a Source of Economic Growth
• Working age segment is in a “sweet spot” for potential economic growth
• Opportunity to develop retirement infrastructure in the next decades
(P 100 l f ki )
Working Age Segment Continues to Expand Favorable Demographics Due to a Low Dependency Ratio
500
600
700 Elderly (65+)
Working age
Children (age 0-14)
(Million)
70
80
90
100
(Per 100 people of working age)
Sweet spot (34 yrs)
200
300
400
Sweet spot
2003-2036
20
30
40
50
60
Elderly
0
100
1950 1970 1990 2010 2030 2050 2070 20900
10
20
1950 1970 1990 2010 2030 2050 2070 2090
Children
Lazard Asset Management4
As of 4 May 2012Estimated data are not a promise or guarantee of future results and are subject to change.Source: Goldman Sachs Global Economics, Commodities, and Strategy Research, United Nations
Latin America in the MSCI Emerging Markets Index
Peru, 3%
MSCI Emerging Markets Index Region Weights (817 stocks) MSCI EM Latin America Index Country Weights (135 stocks)
Brazil 14%
Latin America, 22%
Mexico, 21%
,China, 18%Brazil, 14%
Asia, 59%EMEA 18% Brazil 62%
Colombia, 5%
EMEA, 18% Brazil, 62%Chile, 8%
Lazard Asset Management5
As of April 2012All data reflect roundingSource: MSCI, Factset
MSCI EM Latin America Index MSCI Emerging Markets IndexMSCI AC World Index S&P 500 Index
Annualized Return (%)
Annualized Standard Deviation (%) Sharpe Ratio
A f A il 2012
Return (%) Deviation (%) Sharpe Ratio
MSCI EM Latin America Index 19.38 28.51 0.62
MSCI Emerging Markets Index 15.04 24.08 0.55
MSCI AC World Index 5.65 17.25 0.22
S&P 500 Index 3.95 15.73 0.14
Lazard Asset Management8
As of April 2012For illustrative purposes onlyThe performance quoted represents past performance. Past performance is not a reliable indicator of future results. One cannot invest directly in an index.Source: MSCI, Factset, Standard & Poors
As of April 2012For illustrative purposes onlyThe performance quoted represents past performance. Past performance is not a reliable indicator of future results. One cannot invest directly in an index.Source: MSCI, Factset
Diversification of Economies
• Myth: Latin American exports are commodity driven and rely on a single business partner
• Fact: Brazil is a relatively closed economy, Mexico is dependent on the U.S. but not on commodity exports
Export Destinations (as % of total exports)Total Exports as
% of GDPCommodity Exports as
% of Total ExportsU.S. (%)
Eurozone(%)
China (%)
Brazil 9.7 55.4 9.6 21.4 15.2
Chile 31.9 74.8 3.7 6.8 25.3
Colombia 13.8 56.9 43.1 12.6 4.9
Mexico 32.9 18.3 78.8 5.3 1.2
Peru 23.1 77.7 16.4 17.6 11.8
Lazard Asset Management10
As of December 2011Source: JP Morgan
Mexico: Regaining Competitiveness
• Mexican and Chinese unit labor costs are converging
• Positive implications for the overall economy
2 00
2.50USD per hour
3,200
3,400
9,500
10,000 (MXN billion)(MXN billion)
Domestic Demand and Exports1Unit Labor Costs
1.00
1.50
2.00
2,400
2,600
2,800
3,000
8,000
8,500
9,000
0.00
0.50
2003 2004 2005 2006 2007 2008 2009 2010 E 2011 E
1,800
2,000
2,200
7,000
7,500
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
A f A il 2012
Mexico
China
Domestic Demand (left scale)
Exports (right scale)
Lazard Asset Management11
As of April 20121 Seasonally adjusted, 2003 Mexican pesos, and excluding inventories, data as of December 2011Estimated data are not a promise or guarantee of future results and are subject to change.Source: BofA Merrill Lynch Global Research, Banxico, INEGI, International Labor Organization, China National Bureau of Statistics, Morgan Stanley
Brazil: An Emerging Middle Class and Favorable Job Market
• Growing middle class
• Annual average of new jobs created has doubled
• Infrastructure investments: World Cup Olympics and pre-salt oil investments• Infrastructure investments: World Cup, Olympics, and pre-salt oil investments
As of December 2011Source: Instituto Brasileiro de Geografia e Estadistica and BofA Merrill Lynch Global Research, Haver Analytics
Colombia: An Oil Renaissance
• Economy should continue to benefit from improved security, oil production, and free trade agreements
• Capital market improvements should continue
1,400
1,600
Colombia Oil Production (thousands of barrels per day)1
800
1,000
1,200
200
400
600
A f A il 2012
01980 1985 1990 1995 2000 2005 2010 2015E 2020E
Lazard Asset Management13
As of April 20121 Data from JPM Report Colombian Oils 101, published on 29 Feb 2012Estimated data are not a promise or guarantee of future results and are subject to change.Source: JP Morgan
Conclusion
Opportunities
• Continued growth of the middle class
Risks
• Inflation
• Increasing maturity of the capital markets and IPO pipeline
• Growing pension fund market
• Hard landing in the Chinese economy – base case for soft landing
• Security and social issues – improving
• Infrastructure investments • Government interference – monitoring
Key Insights
• Breadth and depth of investment universe
• Strong indicators for economic growth and renewed political stability
Lazard Asset Management14
Opinions as of May 2012 and are subject to change.
Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to their accuracy or completeness. This presentation is for informational purposes only. It is not intended to, and does not constitute, an offer to enter into any contract or investment agreement in respect of any product offered by Lazard Asset Management and shall not be considered as an offer or solicitation with respect to any product, security or service in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or unauthorized or otherwise restricted or prohibited. All opinions expressed herein are as of the date of this presentation and are subject to change.
Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging market securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging market countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in emerging market countries.p y p g p g g
Past performance is not a reliable indicator of future results.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.