Latin America
Latin American markets fell heavily over the second quarter on rising risk aversion as the Federal Reserve signalled that it could begin to reduce quantitative easing (money printing) later this year and on concerns about the Chinese financial system. Brazil was also influenced by extensive protests against the government. The MSCI Latin American Index dropped by 15.5% in sterling terms over the quarter, underperforming other emerging markets. At a country level, Argentina (-2.0%) and Mexico (-11.1%) held up best, while Peru (-27.4%) and Brazil (-17.1%) fell the most.
Chile provides quality
We are often asked why such a large proportion of our Latin American Fund is invested in companies in Chile (nearly 45% at the moment), while the benchmark weighting of the country in the MSCI Latin America Index is quite low (about 9%). The simple answer is that as bottom-up stock pickers we find many of the best managed and most reasonably valued opportunities among Chilean companies. In addition, there is no doubt that the Chilean economy stands out as one of the best run in the region.
A positive business environment
There are a number of reasons for Chile’s success over the two decades since its transition to democracy. It is not just the copper stabilisation fund, the independent central bank and the more conservative and prudent culture, although all of this helps. In our opinion, the stable economic and business environment in Chile is down to two key things – the hard work of the people and the responsible fiscal behaviour of the government.
An incubator of quality companies
What we like most about Chile is the quality of companies. At the moment we hold significant positions in our portfolio in Chilean stocks Andina and CCU.
Andina is a coke bottling franchise in Chile and Brazil. We are happy backing the Said family, which ultimately owns Andina, to grow a cash generative business with pricing power over the long-term.
CCU is an attractive combination of brand owner (Heineken) and impeccable local family. The Luksic family has built a very successful business over the long-term. Like Andina, the company has a proven track record in generating substantial amounts of cash and returning it to shareholders.
