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Keep up the good work

Politics continue to dominate the investment agenda in Latin America, but economic reforms across the region have been writing a positive growth story for 2017, says BlackRock portfolio manager Will Landers.

Politics has dominated market performance in Latin America; is this trend likely to continue?

To some extent, yes. There are upcoming presidential elections in Chile (November 2017), Colombia (May 2018), Mexico (July 2018), and Brazil (October 2018). There are also mid-term elections in Argentina in 2017. We need to keep a close eye on what happens as a result of these elections, but assuming economic reforms continue to bring down inflation and curb interest rates, investing becomes more about the performance of each company and less about the politics. Company performance mattered less in 2016 when there was so much political upheaval. We are not fully back to normal yet but Brazil, Argentina and Peru are a long way into economic reform. And, with the US presidential election of 2016 behind us, we need to see what will happen in US trade negotiations with Mexico.

What is the situation with regard to Mexican-US trade relations?

Unfortunately, nobody can give a clear answer at the moment as to which way the situation will go. The negotiations over the North American Free Trade Agreement (NAFTA) are important because it currently eliminates trade barriers between the US, Mexico and Canada. While market participants, including ourselves, were concerned with the potential cancellation of NAFTA as discussed during the presidential election, negotiations among the three member nations have made such a drastic outcome as unlikely. Formal negotiations are scheduled to start in August 2017 and appear to be geared towards modernising the treaty signed in the mid-1990s, potentially providing improved terms that would benefit all three member countries.

In the meantime, the Mexican authorities are making moves to protect the country’s economy as much as they can. The central bank increased interest rates by 0.5% in February to reach 6.25% with the hope being this action will protect the peso and help to manage inflationi.

After posting a 46% return in 2016ii, has Latin America continued to deliver in 2017?

It’s our belief that the region has the potential to deliver another year of positive equity returns. Through to the end of May 2017, the Trust’s net asset value (NAV) had appreciated 10.6%, and we expect that improving economic activity in many of the countries in the region could continue to result in further appreciation of the region’s equity markets. Please note there is no guarantee that any forecasts made will come to pass.

Annual performance
(%) to last quarter
end (GBP)
30/06/16-
30/06/17
30/06/15-
30/06/16
30/06/14-
30/06/15
30/06/13-
30/06/14
30/06/12-
30/06/13
BlackRock Latin American Investment Trust plc Net Asset Value 16.70 9.55 -17.74 -0.44 -1.44
MSCI EM Latin America GR USD (Benchmark)
18.76 9.08 -16.49 -3.03 -3.58

Source: BlackRock, as at 30 June 2017. BlackRock performance figures are calculated on a total return basis with net income reinvested including management and operating charges and any performance fees.

Past performance is not indicative of future results. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. It is not possible to invest directly into an index. NAV performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.

Economic policies are also helping to bring down interest rates and inflation, which should drive growth in the country. Put that all together and we believe the environment looks encouraging for Latin American shares this year. This should not be relied upon as a forecast or investment advice, nor as a recommendation to adopt any investment strategy.

What’s the situation with regard to Brazil’s reform agenda?

The National Congress of Brazil passed a law in 2016 that capped public expenditure for the next 20 years. The focus is now on social security reform, particularly pensionsiii. But the most important thing for short-term economic performance is the Central Bank of Brazil accelerating its interest rate easing cycle that would encourage economic recovery. The bank has cut interest rates by 3.5% already in 2017 to 10.25%iv. We think interest rates will continue to fall and will reach single digits by the end of this year, which would provide a good boost for growth and economic recovery.

Do any other Latin American countries stand out currently?

We expect growth in Argentina to be on the positive side having been negative over the past few years. Growth improved in the final quarter of 2016 and returned to positive territory in the first quarter of 2017v. Forecasts continue to predict improvement in the country’s gross domestic product (GDP) from 0.5% at the end of March to an expected 0.73% for the end of the second quartervi.

We also expect to see inflation continue to come down gradually and consumer spending to rise. In addition, there is a chance that the index provider MSCI will reclassify Argentina from a frontier market to an emerging one at some point in the coming months, which will open up the country to more investmentvii.

We also like Peru but are less enthusiastic about the country than we were six months ago. The country’s GDP has seen a gradual slowdown since the start of the year growing by just 0.6% in the first three months of 2017 compared to 1.6% for the final six months of 2016viii. This partly reflects issues with large-scale infrastructure projects that have been hindered by corruption scandalsix.

We believe Latin America continues to show growth potential in 2017. To find out more about the potential opportunities in the region’s markets, click here.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as at June 2017 and may change as subsequent conditions vary.

 


i Trading Economics, March 2017
ii BlackRock, as at 31 December 2016
iii Bloomberg, February 2017
iv Trading Economics, as at 1 June 2017
v Trading Economics as at 8 June 2017
vi As above
vii MSCI, ‘Consultation on a Market Reclassification Proposal for the MSCI Argentina Index’, June 2016
viii Trading Economics, June 2017
ix BNamericas, February 2017

Trust specific risks: Overseas investment will be affected by movements in currency exchange rates. Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore the value of these investments may be unpredictable and subject to greater variation. Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our product is suitable, please read the Key Features document and the Annual and Half Yearly Reports available at blackrock.com/uk/brla for more information where you can find a full explanation of these types of investment techniques and more information about the risk profile of the investment. We recommend you seek independent professional advice prior to investing.

The BlackRock Investment Trusts ISA and BlackRock Investment Trusts Savings Plan are managed by BlackRock Investment Management (UK) Limited. All the trusts are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Trust has appointed BlackRock Investment Management (UK) Limited as Investment Manager. It will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

The Company currently conducts its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

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