Earlier this month, we sat down with Bruno del Ama, the CEO of Global X to talk about the dynamic Latin America market. Global X is one of the main providers of ETFs that target the Latin America market, with six South American funds in total including products tracking the individual economies of Colombia (GXG) and Argentina (ARGT). In this interview, we discuss some of the reasons why the region appeals to Global X and how these economies could fare in the turbulent times we are facing. ETF Database (ETFdb): Global X is one of the leaders in the Latin America ETF market; what about the continent specifically appeals to the investment team?
Bruno del Ama (BdA): We are focused on Latin American ETFs because of the resources and growth potential of the region. Latin America is a global powerhouse when it comes to food and commodities production. In addition to commodities, increased diversification in trading partners to other, fast growing emerging markets such as China and the emergence of a middle class will likely drive growth for years to come.
ETFdb: Latin American ETFs, much like other emerging markets, have seen significant outflows to start 2011. Why has this happened?
BdA: Accompanying the impressive performance of emerging markets in 2010 was sentiment that inflation could pose a problem moving in to 2011. Concern over this possibility has led some investors to allocate more resources to developed markets. However, deteriorating fiscal situations in many developed markets (high debt ratios, low growth rates) should be taken into account, and it is possible that 2011 will see a return of inflows to emerging markets and Latin America – particularly for countries which have demonstrated sound economic policies and actively addressed the issue of possible inflation [see the Ultimate Guide To Latin America ETFs].
ETFdb: How do you think Latin American stocks will react to higher oil prices? Are these emerging economies ready to deal with oil in excess of $100/bbl?
BdA: With regard to specific stocks in Latin America and the effect of oil prices, it is of course important to consider the industry in question. For energy stocks involved in oil production, higher prices translate into higher profits and these stocks are therefore likely to perform well. For companies that have oil/energy as a major input (e.g. airlines), high prices will increase costs and likely lead to underperformance. From a macroeconomic standpoint, the effect on countries within Latin America will be influenced by a given country’s status as an importer or exporter. For example, Colombia – which we track with our FTSE Colombia 20 ETF (GXG) – is an oil exporter, and several of the largest companies in its stock market are engaged in oil production. In such a case, higher oil prices might contribute to outperformance in this particular market.
ETFdb: One of the newer products from your company, the Global X FTSE Andean 40 ETF (AND), tracks the 40 biggest companies in Chile, Colombia, and Peru. Why were these three countries grouped together and why do you believe they make a strong investment for the future?
BdA: The Andean region has been among the best performing stock markets in the world. The ETF will allow investors to take advantage of a pending agreement to merge the stock markets of Chile, Colombia, and Peru, which will create the second largest stock exchange in Latin America after Brazil’s and 50% larger than Mexico’s. It is clear that these countries are pushing toward greater regional integration, and we saw an opportunity to provide investors with an easy way to access the region and to benefit from increases in trade, liquidity and growth.
ETFdb: Argentina has been rocked by inflation as of late with some estimates putting the unofficial rate above 20%. Given this, what about the country makes for a compelling investment and why should investors consider looking at ARGT?
BdA: Argentina stands as the second largest economy in South America by GDP, trailing only Brazil. It has also developed trading ties with emerging economic powers; in 2010, nearly 19% of exports went to Brazil and over 9% went to China. As the second largest corn exporter and third largest soy exporter in the world, investors may stand to benefit from increased food demand from the emerging world. Argentina has also demonstrated impressive GDP growth in the past five years, at an average rate of over 6%. Rapidly increasing exports and a rapidly declining unemployment rate are also favorable developments for the Argentine economy and make it an interesting possibility for investing in the region [see Global X Debuts Argentina ETF].
Disclosure: Eric is long EWZ, AND.