INVESTMENT TRUSTS

2021 Outlook: Latin America

A new US administration and stimulus package should be good news for atin American markets. The region also has a hand in the green energy revolution, says Ed Kuczma, Co-Portfolio Manager of the BlackRock Latin American Investment Trust plc.

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The combination of a Democrat victory in the US presidential election and the recent progress on vaccines has seen a rally in emerging markets, including Latin America. However, even after this recent strength, emerging markets still fall into the ‘value’ area, underowned and underappreciated by global asset allocators. A new administration and fresh stimulus package in the US could change this.

Mexico should be a significant beneficiary of a Biden presidency and is our largest active overweight in the portfolio. The country may also thrive amid a desire by US and global companies to diversify their manufacturing away from China. For US companies, this can help them move to a just-in-time inventory - lead times into the US are far quicker from Mexico. Importantly, there is also no concerns on intellectual property, as there might be with China. The country may also benefit from infrastructure spending in the US, an important part of the new stimulus package.  

We believe Latin American markets in general should be supported by global recovery in the year ahead. The US stimulus package alongside China’s economic strength should create more demand for raw materials, pushing up prices. Raw materials still comprise around 30% of the Brazilian index. It is also likely to weaken the Dollar, providing support to emerging market currencies.

It is also worth noting that Latin America has a hand in the green energy revolution sweeping the globe. We own a Chilean lithium producer, for example. Lithium is one of the main raw materials used to make electric batteries and should benefit from the shift to green energy, which has been accelerated by the pandemic. This group is among the lowest cost producers of lithium in the world and we expect growing demand.

We also hold a pulp maker. There are well-documented sustainability concerns over the use of plastic and there is increasing substitution with paper products. This is a structural driver for pulp producers. This ties in with a broader overweight position in materials, which dovetails with the reflation trade.

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 from BlackRock as of January 2021 and may change as subsequent conditions vary.

Ed Kuczma
Co-Portfolio Manager, BlackRock Latin American Investment Trust plc