From Aberdeen to Brasilia: three reasons to invest in Latin America

The prospectus for the soon-to-be-launched Aberdeen Latin American Income fund sets out well the reasons for investing in the region.

That doesn't mean you should rush out to subscribe for shares in the new investment company but if you have been following our series on investing in emerging markets the prospectus is well worth a read.

But if you haven't time here's a summary and three charts taken from the publication.

No more tequila?

Aberdeen reminds us that Latin America, like all emerging markets such as China and India, has had its fair share of downturns and crises:

• the 'Tequila effect' currency devaluations sparked by the Mexican peso's collapse in 1994
• Brazil's currency crisis in 1999
• debt defaults in Argentina and Ecuador.

No one can rule out more crises in future but the point is Latin America is no longer dominated by inefficient, state-run monopolies or family-controlled companies with 'opaque management and poor corporate governance'.

You could say Latin America has developed an equity culture. Certainly the region has rewarded investors, according to Aberdeen, delivering annualised total returns of 20.9% over the last five years.

What else has changed?

Basically Latin America learned its lessons from the past and:

• adopted sounder fiscal and monetary policies and worked hard to keep inflation low
• introduced more conservative banking practices
• as a result the region's banks were not as heavily borrowed as banks in Europe and the US and had none of the 'toxic' investments that sank Lehman Brothers, RBS etc

And this meant Latin American countries emerged from the credit crunch with much lower debts than the G3 (US, Japan and the European Union). 

Latin America has had its austerity

And now it's open for prosperity:

• Aberdeen points out that Latin America is rich in natural resources and commodities - global demand for raw materials has led to trade surpluses;
• Tax reforms and prudent government spending policies have led to current account surpluses - again in contrast to the West;
• Brazil and Mexico are growing and, in terms of GDP (gross domestic product), are forecast to overtake the UK and France in 2013;
• Share prices in the region have soared to reflect these achievements but Aberdeen argues they are fairly priced as corporate earnings are forecast to continue to grow, boosting dividend payments to shareholders.