Public Equities

Latin American Equities: More Than Meets the Eye

February 2023 – 6 min read

Despite the uncertain global macro backdrop, the combination of long-term structural trends and attractive current valuations is presenting a compelling opportunity in Latin American equities.

Latin America was one of the best performing markets globally in 2022. The region benefited from robust commodity export prices that were driven by global supply constraints, largely as a result of the war in Ukraine. This has stood in contrast to many developed and emerging countries which have suffered from inflationary pressures and fading growth.

“Latin American equities will continue to present unique long-term growth opportunities, which arguably remain unrecognized by many investors today.”

Looking ahead, while the outlook for the global economy is subject to near-term uncertainty and a potential recession in developed markets, we believe Latin American equities will continue to present unique long-term growth opportunities, which arguably remain unrecognized by many investors today. In particular, there are a number of supportive long-term trends benefiting the region—from the rise in nearshoring manufacturing, to the increasing importance of food security, to the urgency of the energy transition. In our view, companies that are directly or indirectly exposed to these sectors look poised for further growth.

1. Nearshoring

The practice of nearshoring—when companies invest in the production of finished goods closer to their home country to mitigate the challenges stemming from global sourcing—has accelerated rapidly post-COVID. As countries like the U.S. move to bring their supply chains closer to home, Mexico in particular stands out as a key beneficiary. In addition to its large and relatively young population of more than 120 million people,1 the country’s proximity to the world’s largest economy has cemented Mexico’s position as an emerging global manufacturing leader. This position is further reinforced by the numerous trade deals, including the United States–Mexico–Canada Agreement (USMCA), that Mexico has with over 50 countries.

As the nearshoring phenomenon continues to play out in the U.S., we believe Mexico will see significant investments which will stem from U.S. policies aiming to bring back production from Asia to North America. The recent supply disruptions globally have added fuel to this trend, with many companies moving from a ‘just-in-time’ to a ‘just-in-case’ mindset. Further underscoring Mexico’s attractive positioning, it takes less than five days to transport finished goods from a Mexican manufacturing base to the U.S., compared to five to six weeks on a container ship from Shanghai—and this can often be done at a considerable cost discount.

1. Source: United Nations Population Data. As of January 2022.

Want to read the full article?

View PDF

Michael Simpson, CFA

Head of Latin American Equities

Luis Alves de Lima

Investment Manager, Latin American Equities

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Any investment results, portfolio compositions and/or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document. No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

Related Viewpoints