Aberdeen: a tough year for Latin American markets

Kate Marshall | Mon 30 July 2018

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• Latin American stock markets have been weak this year
• This affected the fund's performance
• Rising wealth and consumption could drive longer-term growth

Our View

We like the experience the emerging markets team at Aberdeen brings to this fund.

They have a long history of investing in the region. We think this is important when it comes to a specialist and higher-risk emerging market such as Latin America.

We recently met Devan Kaloo, who leads the team. He told us the team has recently made some changes in order to make their investment process better. Investment decisions and changes to the fund should now be made at a quicker pace, for example.

There are no guarantees what impact these changes will have. But we're pleased the team wants to improve what they do. We like the fact the core of their process is the same. They continue to look for companies in good financial health, run by trustworthy management teams with a long-term outlook.

Latin American stock markets have recently been weak and this has impacted the performance of the fund. Over the long run we think these markets offer a lot of potential and this fund is one of the best ways to get access to this area. The fund currently features on the Wealth 150+ list of our favourite funds across the major sectors.

What's affected performance?

It's been a tough few months for Latin American stock markets. They've been affected by the same concerns that hit most global markets, including the potential for a global trade war. But they’ve had their own problems too.

Brazil is Latin America's largest economy. It has a Presidential election later this year and this has caused some uncertainty with investors. A recent truckers' strike also hasn't helped. It stalled economic growth and disrupted the supplies of necessities such as food and medicines.

Argentina's market also fell after it raised interest rates to 40% in an effort to stem inflation and its currency's decline.

The market falls have impacted the performance of Aberdeen Latin American Equity. The fund has also been hurt by the poor performance of some individual companies.

Shares in BRF, a Brazilian food company, were damaged by the truckers' strike when it had to stop production at four of its processing plants. An investment in Ambev, the Brazilian brewing company, also fell because of lower sales of beer and soft drinks. But the company is expected to have benefited from increased sales during the World Cup, and the team is positive about its longer-term prospects.

The broad Latin American stock market and the fund has fallen in value since it launched in February 2011. But the fund has performed better than its benchmark over this time and we'd expect it to do well over the long term. Past performance is not a guide to future returns.

Past performance is not a guide to the future. Source: Lipper IM to 30/06/2018.

Outlook

The team believes Latin America's long-term potential lies in the rising wealth of its middle class. So they've focused on companies that could benefit from domestic consumption.

This includes Lojas Renner, one of Brazil's leading department stores, and Multiplan, a Brazilian mall owner. Its malls are nearly at full occupancy, which provides steady rental income, and it's also developing a number of new sites.

Rising incomes means people are also spending more on financial products and services. So the fund invests in banks, such as Mexico's Banorte and Brazil's Banco Bradesco.

More infrastructure, such as roads and power supplies, is also required for these countries to fully develop. As demand for infrastructure increases, this could benefit the fund's investments in construction, transportation and real estate companies.

Periods of volatility should be expected though, especially as these economies continue to evolve and experience more political uncertainty than developed markets. A long-term horizon is therefore essential when investing in these markets.

Please read the Key Features/ Key Investor Information in addition to the information above.

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