July 4, 2025 • 28 mins
You want to invest in a market with political stability, low valuations and fast growing companies? Perhaps even one that might benefit from President Donald Trump’s deglobalisation agenda?
This week, host Merryn Somerset Webb is joined by Jose Manuel Silva, chief investment officer and partner of LarrainVial Asset Management, to discuss the place you should be looking - Latin America.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to Marin Talks Money,
the podcast in which people who know the markets explain
the markets. I'm Meren Sunset Web. This week, I want
(00:24):
to focus in on a market that I think global
portfolios are not paying enough attention to, Latin America. I
wrote a column a few weeks ago which I hope
you all read, making the case for investors to think
more actively about the region. It's currently very cheap relative
to more expensive markets such as the US in particular,
and also cheap relative to much of the rest of
(00:46):
the emerging markets universe. There's a lot of good dividends
around as well, and of course it's often passed up
because it's categorized as an emerging market and all lumped
together as one, and this of course is very misleading.
So in this episode are going to talk about the
investment potential of Latin America. And joining me to do
that is Jose Manuel Silba, the chief investment officer and
(01:07):
partner of laren Vial Asset Management, which is one of
the leading investment houses in Chile. Welcome Jose, Thank you
so much for joining us today.
Speaker 2 (01:16):
Thank you very much, joining good morning for us, good
after for you, probably in for me.
Speaker 1 (01:20):
Absolutely, we've got quite a lot to get through. So
let's just start, if you don't mind, by addressing this
issue of the emerging markets categorization. If you look up
the MSCI Emerging Markets Index, you will find that in
there you have Brazil named as sort of four point
four percent of the index. Nothing else in Latin America
is mentioned at all. It's all just under other, a
(01:42):
little bit of lump of the other, nothing special in there.
And the question, of course is whether many of these
markets should even be classified as emerging markets at all.
None of it really makes sense, does it.
Speaker 2 (01:54):
Yeah, Because, for instance, in the emerging markets you have
countries like Taiwan or South Korea which probably you define
them as developed countries today. And additionally, of course it's
a categorization which mixes countries with very different type of
microeconomic and microeconomic settings. Companies or countries which are very
(02:14):
related to Asia, to China, to the Chinese microeconomic I
would say cycle, some other countries which are much more
related to the European economic cycle, and others much more
related to the US economic cycle. Countries which produce technology.
After the countries produce a lot of commodities. But really
you are mixing there a lot of different countries, and
(02:36):
actually even in the Latin universe you have quite a
mix of countries and different types of I would say
macro and microeconomic settings.
Speaker 1 (02:46):
And there's also the sense, isn't it that if something
is an emerging market, it comes with weak institutions and
almost the sense of some kind of political chaos or volatility.
And that is something that one may in the past
have associated with Latin mimer. There's political volatility all over
the place, but at the moment you look around the
world and we've got a bastion in stability here.
Speaker 2 (03:07):
Yeah, what happens is, luckily the developed world has become
more volatile, I would say in terms of institutions, some
of the institutions that have made the developed world what
it is are I would say, under attack those four
apps that Professor Neil Ferguson always says that the Western
world downloaded so that the Western world became what it
(03:28):
is now. Probably a lot of people are doubting if
it was a good idea to download those apps, which
I think is a bigger or to have that idea.
But really, and on this hand that the emerging market countries,
many of them have been doing quite a lot of
reforms in the last thirty four years, twenty five years.
(03:49):
That's the case of America, but also that's what you
see in Asia. Some of those countries are growing a
lot and are improving the institutions a lot. In many ways,
they still have weak in situations, but I would say
the gap between the spe quality spread between institutions between
the developed world and the emerging market world have closen, yeah,
(04:10):
very much. So twenty years I would say.
Speaker 1 (04:13):
Yeah, while we're talking about political stability, let's have a
quick talk about the United States trumps America and how
that affects the region as a whole. We might come
onto more specific countries in our relationships with the US
no of course, for China later, but as an overall view,
how does Trump's America affect the relationship with Latin America.
Speaker 2 (04:35):
It's difficult to say, because on the one hand, of course,
you see a United States which in a way it's
closing on itself or probably after many many years where
the United States was the guy that led the globalization
process and led institutions that in a way, the developidation tours.
(04:55):
You know, all agreement after the World War, you know,
the gap agreements and now called WTO and how the
US led the world after the Berlin World fell. All
of that is under I would say attack. Now in
the US. Probably it's true that there's a part of
the US middle class that was under heavy attack by
Asian competition. So probably that those people are a bit
(05:19):
angry under wages and under instability, and so in a
way one feels that the US is closing itself, you know.
It's there's a book which is called the Closing of
the American Mind by HOWD Blumer. We could call this
the closing of the American market.
Speaker 1 (05:36):
Yeah, this could be a positive in some ways for
Latin America because from America is pulling back from the
wider world that's pulling back into the Americas.
Speaker 2 (05:44):
Yes, that's true. That's for instance. That's why what our
partner Leuvan Song gav have suggested for some years now.
He talks about Fort Monroe, you know, relating this to
the Monroe Doctrine, which was this rectrem in the nineteenth
century who said America's to the Americans, you know, so
keep the European powers out of the America. And in
(06:04):
a way now the US is saying we should perhaps
retreat to this fortress, you know, fortress America. They talk
about the Western world, and there was involved for them
is all of the Americas. And for instance, Predident Trump
appointed a point and first minister. He's a Latin, Marco Rubio.
He is married to a Columbian lady. He knows very
(06:27):
well Latin America. He's a friend of many politicians in
the region. He's second in command. Also was a former
ambassador to Mexico, and when he was a young guy,
he was the son of the ambassador, the US ambassador
in Chile, in Venezuela and Paraguay. So he's also a
guy that knows perfectly well what's happening in the region.
(06:47):
So for the first time you have a team inside
the White House that really knows Latin America and knows
the process, the minuses who is who and so why
would to say that the US will try to enhance
its relationship with Latin America, especially its economic relationship. Well,
(07:11):
the US has already signed retrade agreements with several Latin
American countries. The first one was the Chillian one, but
not the only one now, So I would say that
the US, probably if it wants to retreat from the
rest of the world, needs in a way Latin America needs.
Latin America's markets, needs its Latin America's demography needs Latin
(07:35):
America's commodities. This could be the beginning of interesting times
for Latin America. I agree with that.
Speaker 1 (07:41):
And it also one more thing you didn't mention in
that list was Latin America's high end manufacturing abilities. So Mexico,
for example, is turning itself into a high end manufacturing hub.
Speaker 2 (07:51):
Or we talk about.
Speaker 1 (07:53):
Friend sharing and close shoring, and Mexico is the obvious
home for that kind of maney for sure.
Speaker 2 (07:58):
And actually one of the interesting things about that in
America is that in a way you have had thirty
years of economic reform. Really the microeconomic reforms began in
Chile in the seventies, eighties and nineties with what they
called the Chicago Boys. You know, it was a free
market reform, the regulation, privatization, opening up the economy. Many
(08:19):
other lat the American countries copied Chile was the case
of Peru, partially Colombia in a way partially Mexico too,
because of the success, Chile became a laggard in the
region in the seventies and became one of the wealthiest
countries in the region in the late nineties and during
the first decades of this century. So countries followed that path,
(08:44):
and even the two giants the region, you know, Mexico
and Brazil, have reformed a lot of their institutions, especially
macro institutions, so they have now central banks which are
quite independent. In the case of Brazil, you don't have
hyperinflation anymore. In the case of Mexico neither. The last
(09:04):
country probably to have hyperinflation was Argentina, and it seems
that with President Milay they are away controlling the beasts,
the fiscal beasts and the hyperinflation beasts. So in a
way for the US it makes a lot of sense
to integrate more with this region. But this, as you mentioned,
part of this reform is that some countries, especially Mexico
(09:27):
and Brazil, have now very high end manufacturing activity. But
you have the carry industry of course in Mexico, but
for instance, in Brazil you have a company like Embraer
which produces airplanes, and they produce commercial airplanes that are
gaining market sail all over the world, and they actually
they are benefiting from the problems from Boyling and partially Airbostole.
(09:51):
Now they are selling actually a military transport airplane to
NATO countries Embryer. So really you have very interesting industrial
companies in the region.
Speaker 1 (10:02):
Yeah, then you have one thing that we haven't mentioned
yet is a slightly lower level of debt risk than
you might have and some what we consider to be
very developed countries. So debt to GDP ratios across Latin
America are slightly lower than elsewhere. And I think is
it highest in Brazil. The high in Brazil eighty percent,
but others are below that. When you think that, you know,
UK is one hundred and other western countries are well
(10:24):
over that. That's slightly reasering too.
Speaker 2 (10:26):
Yeah, Chile has around forty percent, Mexico is fifty percent,
Columbia sixty percent, Rules thirty five percent of GDP. So really,
it's true that one of the main reforms that Latin
America has done in the last thirty years is was
called the macro reforms with these independent central banks thanks
to privatizations all over the place. Because we have had
(10:49):
privatizations from Mexico to the Cave Horn. And because of that,
now physcal deficits are more controlled because in the past,
part of the physical defic it's where due to financing
state owned companies, you know, and now many of those
companies have been privatized. They are very productive companies, or
(11:09):
they are partially privatized, and that's the case of companies
like Eco Patrol, the oil producing company in Colombia, or
Petro Bras in Brazil, you know, Brazil. Very few people
realize that Brazil is becoming an oil giant. Today. Brazil
is the largest oil producing country in Latin America. And
now not only Brazil is self sufficient in oil, which
(11:31):
was not the case forty years ago, but Brazil is
becoming a large exporter of oil. And it's partially done
by Petro Brass, but also by new private, mid sized
private companies in the oil industry. Some of those companies,
we invest in them and in their bonds and their inequities.
And it's very interesting what's happening in Brazil in the
(11:52):
oil field.
Speaker 1 (11:53):
And this is really interesting because one of the criticisms
that has been made historically of Latin American economies is
that they have failed somehow to proper monetized their enormous
natural resources. So you know, so many Latin American countries
are so rich and everything from copper to oil, to lithium, etc.
But somehow it hasn't quite been monetized properly. So Brazil
and oil turns out to be a positive way forward
(12:14):
for that. And then of course as we move through
the energy transition, or we attempt to move through the
energy transition, and electricity demand goes up, then all these
other metals wearers, and Latin America is very rich and
weres become an extraordinary resource that with a stable economic background,
can be much better monetized than in the past.
Speaker 2 (12:33):
Yeah, they're actually, to be honest, once again, the poster
child in the region in terms of monetization of mineral resources.
For Chile, Chili created a very pro market and pro
private property mining law in the late seventies early eighties
that produced a boom in exploration and then a boom
(12:55):
in copper production that allowed Chile to become the largest
copper producer in the world and Peruna is the second
largest copper producer in the world. Chile also produces a
lot of lithium.
Speaker 1 (13:06):
As i'spayed some fastson there about let'sium mining and the
environmental problems.
Speaker 2 (13:10):
Lithium in Chile is extracted from what they call the brines,
those are salt lakes in the desert. The same thing
will happen in Argentina actually, and probably impartially in Bolivia.
Bolivia is a country that probably has less monetized its
natural resources. But in the case of Argentina, once again,
what's happening there is very interesting because Argentina is beginning
(13:32):
to monetize it's lithium wealth, it's mineral wealth, but also
it's oil wealth. Argentina discovered a few years ago very
large shale oil and shale gas deposit called Vacamuerta, and
even the Kishners allowed the developer of that deposited because
(13:53):
they realized that Argentina couldn't afford not to develop it.
And Argentina also is very very rapidly becoming the second
largest gas and oil produced producing country in Latin America,
and probably in the next few years Vacamuerta deposit will
become a huge, huge exporter of gas for Argentina.
Speaker 1 (14:15):
Interesting. So we have this region with this stableish economic environment,
stable age, political environment, high end manufacturing, rising middle class,
massive resource potential. So it kind of sounds perfect and
you can get it across the board on a valuation
significantly lower than as family average pe across Latin America
or something like nine times.
Speaker 2 (14:36):
Right, we have risks, We have political risks. There is
still a left wing in American sector. Actually, we just
had primaries for the left in Chile and it was
the Communist party Candya that won the primaries with very
low participation of people, et cetera, et cetera, but it
was the Communist party that one. So you say, well,
(14:58):
there is a risk, but the risk in a way
is embedded invaluation, because we are talking that among emerging markets,
Latin America is trading probably one or one half standard
deviation below the average of the last twenty five years
compared to emerging markets, which themselves are trading at the
(15:19):
very low multiples compared to developed especially in the US.
So really a lot of bad news are embedded in
Latin American asset prices, equity prices, but also you know
interest rates. For instance, there is another asset class which
is very less well known, is latinm corporate credit. In
(15:46):
heart currency. You know, we manage a fund that invests
in Latin art currency bonds. So those are bonds issued
by the blue chips all over the region that issue
bonds offshore using you do it in dollars, and those
are bonds which have a current deal of around eight
percent dollar dominated. And I always say that you have
(16:07):
their sort of a restrating arbitrash because these are cambris
which if they had their headquarters in Miami, they would
be classified as an investment grade. But since they have
their headquarters in South Paolo or in something or Bogota,
they are high yield. Yes, you have a lot of
(16:28):
assets which are very interesting training at low multiples or
high yields. So with a lot of add news and
budded enter prices and with a you, I would say
good stories, you know, good company stories, good macro stories.
Probably people have a lot of investors don't realize the
interesting things that that happen year.
Speaker 1 (16:50):
Let's talk a little bit about how you invested and
where you invest at my fun fact of the day
that someone told me this morning, as it only takes
an hour longer to fly from London to South Paler
than from Power to Mexico City, so you know you
are covering an insanely large area when it comes to
looking at companies, and your website tells me that the
(17:10):
company that you fund managers are visiting two hundred companies
a year, so you must be spending most of your
life on an aeroplane, are you? How are you choosing
companies to invest in?
Speaker 2 (17:19):
Yeah, we use several techniques, O say. First, of course,
we try to know very deeply the region, so we
travel a lot. We have a lot of also a
network of friends, i would say now at the end
of the days, all over the regions. So we have
been vesting in the region for the last forty fifty years.
(17:39):
Lambia my company has ninety years history, so we have
been helping Chileans invest in the region for many, many years.
Of course, we have the advantage of the language, so
even if it's a very huge market in terms of
hours over the plane, we most of us speak Spanish
or Portuguese or port tool which is sort of a
(18:01):
blend between the Brazilian Portuguese and our Spanish, so we
we tend to understand ourselves, so we have a sort
of a common culture, even if it's the mex Mexicans
are very different from Chileans, and Chili's are very different
from Peruvians and Colombians, but we have the same language.
Then of course we use a very sophisticated i would
(18:22):
say quant model to get new ideas and control risk.
And so with the quant model, we see what are
the i would say most interesting companies all over the region,
and then we travel. You know, we have our analysts
are located mostly in Santiago. We have some analysts in Lima,
some analysts now in Argentina too, but we travel a
(18:43):
lot and also a lot of Latin American companies come
to Santiago. Santiago has become sort of a pension pub
you know, Chile has around three hundred and fifty billion
dollars in pension funds undermanaged.
Speaker 1 (19:00):
Recently been some significant reforms to depends and system in
Chile right which means that there should be going forward
significantly higher flows into the actual market.
Speaker 2 (19:09):
And in Mexico. That's another interesting thing that has happened
in the last I would say thirty years, is that
for the first time in latinin history, you have local
investors in local currency which are investing for the long term.
For instance, in the past, when a Latin blue chip
(19:30):
needed money, they needed to issue in dollars, because it
didn't they couldn't issue bonds locally. Now in many of
our markets, Mexico, Peru, Chile, Brazil, you have an internal,
wide developed bond market in local currency, which is the
(19:50):
biggest investors are institutional investors, and that has helped a
lot in terms of reducing the risk, the macroeconomic risk,
because the typical microeconomic risk that Lat'm facing the past
is that suddenly you have commodities coming down to price
and so the effects you know, the currency is devalued,
(20:12):
but you also had a lot of external debt government
and also corporations. Now you still have volatility in the
prices of commodities. That's normal. Part of the death of
local corporates, of local banks and local government is issued
in local currency, which.
Speaker 1 (20:31):
Must have been helpful for Mexico and Brazil last year
because both so that currency is weakened substantially.
Speaker 2 (20:37):
That's right, that's right, And in the case of Chile
to Perutu, today I would say the cost of capital
of many of local corporates is lower than in the past.
If you consider that now they do not need to
hedge their external debt because they are issuing bonds in
the local markets and that's helping a lot.
Speaker 1 (21:00):
Quite not about Argentina, but can you imagine any of
your funds investing in Argentina because they don't at the moment,
you don't hold Argentina and equity.
Speaker 2 (21:08):
Well, we know, we invest, especially in Latin Argentina's bonds,
corporate bonds, and those are dollar denominated corporate bonds. So
we have core bonds of companies like YPF, you know,
the oil producer in Argentina, the one that is producing
the oil in Baca Guerta, or another oil producing companies
(21:28):
like Pampa or Vista. Lately, we are beginning, especially since
we realize that the Milai reforms are going on track.
They're working, they're working. We are beginning very slowly to
invest in some equities. Additionally, what happens is that you
have some Latin American companies, especially the Chilian ones, that
(21:50):
have Argentina and assets which until now they were valued
at zero. So you have a company in Chile called Senkosuits,
one of the largest retailers in Latin America. They are
in supermarket, hypermarket department stores, do it yourself stores, and
they are one of the leading companies in all those
(22:12):
fields in Chile, in Peru, in Colombia. They even have
a high end supermarket in the States. But probably in
the mid nineties, one of the largest assets of sen
Cosut was Argentina and they still have it. They still
have it. The problem is that in the last twenty
years investors have said, Okay, we're going to value those
(22:35):
assets in Argentina zero. We don't count on them now
that Argentina is going up. These guys have a huge
supermarket hypermarket business in Argentina, they have a do it
yourself retail stores in Argentina, they have males in Argentina,
and actually when you buy the Argentina ETF, you are
(22:57):
buying also sen Cosuit, for instance, the co Oak Butler
in Santiago, which also has a huge position in Argentina.
Once again, in the past everybody said, okay, let's consider
those Argentina and assets as valueless. You know, they're worthless,
so we're not going to value and both the Yao
and Dina that's the name of the company, which also
(23:19):
has bottling operations in Brazil and in Paraguay. But now
suddenly the boatling operations in Argentina are beginning to be valued,
so you.
Speaker 1 (23:29):
Can get access to the Argentinian market without having to
buy an equations in Argentina.
Speaker 2 (23:34):
Sorry, you have a company like Medcaalo Liver. Mercalo Liver
is the largest e commerce company in Latin America. Actually
it was founded by Argentinians, which shows Argentinians have an
incredible human capital resource. All over Wall Street is full
of Argentinians. You know. Merkelo Liver was founded by our
(23:54):
Argentina entrepreneurs. It's located in the US, so that it's
incorporated in the US under US law. But now it's
the largest e commerce company all over the region in
Latin America, and it has huge operations in Argentina. Once again,
if Argentina begins to go up to grow to consume market,
delivery will enjoy a lot. What will happen in Argentina.
Speaker 1 (24:18):
Do you have a favorite market among the other main
markets in Latin America. You live in Chile.
Speaker 2 (24:23):
One of the advantages of living in Chile is that
we do not have Brazilian home bias or the Mexican
home bias. But since we're the smallest country of all
of the large ones in Latin America. We have to
invest in Brazil, we have to invest in Argentina, we
have to invest in Mexico. And in a way more
than being a lot of a country in itself or
(24:45):
a market, we try to fall in love with companies
and we find incredible companies in Mexico, in Brazil, now
in Argentina, to in Peru, you have very good companies.
The market is smaller in prou less liquid, but you
have an incredible bank like the Creditor Peru, which is
a very very well run bank. You have good stories,
(25:08):
you know, in the retail sector in Peru. You have
good banks in Colombia too. We are a very bottom
uped house. We do a lot of research. We try
to really meet all the companies with the senior management.
We build very sophisticated I would say evaluation models. So
in a way we try to fall in love companies.
Speaker 1 (25:26):
Everyone hates it when I asked this question. Everyone hates
to have to peck one. But if you're falling in
love with a company, what are you most in love
with at the moment?
Speaker 2 (25:34):
We like very much mercaal Oliberty. You know, this e
commerce giant in Latin America. We like their growth, We
like what they're doing in the fintech area. We like
also Empire, you know, the industrial giant in Brazil which
builds very good quality planes. Also is in the defense area.
But we like also commodity producing companies like Petro Brass.
(25:55):
You know, Petro Brass has an incredible dividend yield, it growing.
You know what is the yield the tough one today
Paturize is probably yielding between eight and nine percent per year. Lovely,
our portfolio is yielding around six percent, so you have
yield in Latin American you know, a divon yield. There
is a bunch of companies that yield more than ten percent. Now,
(26:16):
our portfolio have a mix of high devn yielders and
also high growth like Mercaaloibri would be a high growth company.
Also a very interesting internet bank called new Bank. New
Bank now is a huge bank in Brazil. It's entering
the Mexican market. It's entering also the Argentinian market. So
(26:37):
you have also technological companies in the region. You have
a company called Totus in Brazil which is an ERP
you know, enterprise reserve, especially for mid sized companies. You
have very good quality industrial companies. You know, we have
two funds. You know, we have a large LUGP fund,
but also we have a small meatcap and ditricity. With
(27:00):
a small meatcap fund is that you have less less commodities,
less banks, and more industrial companies, more healthcare. You have
a very interesting companies in the healthcare. So really with
so strange, Yeah, we have most of the sectors present
in the index.
Speaker 1 (27:17):
Brilliant. Well, I think you probably convinced everybody that's to
do it. You mentioned the book earlier, the closing of
the American Mind. Are you a agree? What are you
reading at the moment?
Speaker 2 (27:28):
Oh? Well, I am reading a book about Bob Francis,
which was written by Javier Circa with a very famous
Spanish author.
Speaker 1 (27:36):
Turns great, we'll put that on everyone summer reading less.
Thank you very very much, indeed, we really appreciate you
coming on.
Speaker 2 (27:42):
Thankre Maturin, and I hope I convinced someone to get
a view in the region.
Speaker 1 (27:53):
Thanks for listening to this week Marin Jog's Money. If
you like us a rate review and subscribe by every
listening to podcast and keep sending questions or comments Marimani
at Bloomberg dot net. You can also follow me and
John on Twitter or x. I'm at marianeess w and
John is John Underscores Epect. This episode was hosted by
me Marin Suset Web, produced by Samasadi and special thanks,
of course to host it.
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to Marin Talks Money,
the podcast in which people who know the markets explain
the markets. I'm Meren Sunset Web. This week, I want
(00:24):
to focus in on a market that I think global
portfolios are not paying enough attention to, Latin America. I
wrote a column a few weeks ago which I hope
you all read, making the case for investors to think
more actively about the region. It's currently very cheap relative
to more expensive markets such as the US in particular,
and also cheap relative to much of the rest of
(00:46):
the emerging markets universe. There's a lot of good dividends
around as well, and of course it's often passed up
because it's categorized as an emerging market and all lumped
together as one, and this of course is very misleading.
So in this episode are going to talk about the
investment potential of Latin America. And joining me to do
that is Jose Manuel Silba, the chief investment officer and
(01:07):
partner of laren Vial Asset Management, which is one of
the leading investment houses in Chile. Welcome Jose, Thank you
so much for joining us today.
Speaker 2 (01:16):
Thank you very much, joining good morning for us, good
after for you, probably in for me.
Speaker 1 (01:20):
Absolutely, we've got quite a lot to get through. So
let's just start, if you don't mind, by addressing this
issue of the emerging markets categorization. If you look up
the MSCI Emerging Markets Index, you will find that in
there you have Brazil named as sort of four point
four percent of the index. Nothing else in Latin America
is mentioned at all. It's all just under other, a
(01:42):
little bit of lump of the other, nothing special in there.
And the question, of course is whether many of these
markets should even be classified as emerging markets at all.
None of it really makes sense, does it.
Speaker 2 (01:54):
Yeah, Because, for instance, in the emerging markets you have
countries like Taiwan or South Korea which probably you define
them as developed countries today. And additionally, of course it's
a categorization which mixes countries with very different type of
microeconomic and microeconomic settings. Companies or countries which are very
(02:14):
related to Asia, to China, to the Chinese microeconomic I
would say cycle, some other countries which are much more
related to the European economic cycle, and others much more
related to the US economic cycle. Countries which produce technology.
After the countries produce a lot of commodities. But really
you are mixing there a lot of different countries, and
(02:36):
actually even in the Latin universe you have quite a
mix of countries and different types of I would say
macro and microeconomic settings.
Speaker 1 (02:46):
And there's also the sense, isn't it that if something
is an emerging market, it comes with weak institutions and
almost the sense of some kind of political chaos or volatility.
And that is something that one may in the past
have associated with Latin mimer. There's political volatility all over
the place, but at the moment you look around the
world and we've got a bastion in stability here.
Speaker 2 (03:07):
Yeah, what happens is, luckily the developed world has become
more volatile, I would say in terms of institutions, some
of the institutions that have made the developed world what
it is are I would say, under attack those four
apps that Professor Neil Ferguson always says that the Western
world downloaded so that the Western world became what it
(03:28):
is now. Probably a lot of people are doubting if
it was a good idea to download those apps, which
I think is a bigger or to have that idea.
But really, and on this hand that the emerging market countries,
many of them have been doing quite a lot of
reforms in the last thirty four years, twenty five years.
(03:49):
That's the case of America, but also that's what you
see in Asia. Some of those countries are growing a
lot and are improving the institutions a lot. In many ways,
they still have weak in situations, but I would say
the gap between the spe quality spread between institutions between
the developed world and the emerging market world have closen, yeah,
(04:10):
very much. So twenty years I would say.
Speaker 1 (04:13):
Yeah, while we're talking about political stability, let's have a
quick talk about the United States trumps America and how
that affects the region as a whole. We might come
onto more specific countries in our relationships with the US
no of course, for China later, but as an overall view,
how does Trump's America affect the relationship with Latin America.
Speaker 2 (04:35):
It's difficult to say, because on the one hand, of course,
you see a United States which in a way it's
closing on itself or probably after many many years where
the United States was the guy that led the globalization
process and led institutions that in a way, the developidation tours.
(04:55):
You know, all agreement after the World War, you know,
the gap agreements and now called WTO and how the
US led the world after the Berlin World fell. All
of that is under I would say attack. Now in
the US. Probably it's true that there's a part of
the US middle class that was under heavy attack by
Asian competition. So probably that those people are a bit
(05:19):
angry under wages and under instability, and so in a
way one feels that the US is closing itself, you know.
It's there's a book which is called the Closing of
the American Mind by HOWD Blumer. We could call this
the closing of the American market.
Speaker 1 (05:36):
Yeah, this could be a positive in some ways for
Latin America because from America is pulling back from the
wider world that's pulling back into the Americas.
Speaker 2 (05:44):
Yes, that's true. That's for instance. That's why what our
partner Leuvan Song gav have suggested for some years now.
He talks about Fort Monroe, you know, relating this to
the Monroe Doctrine, which was this rectrem in the nineteenth
century who said America's to the Americans, you know, so
keep the European powers out of the America. And in
(06:04):
a way now the US is saying we should perhaps
retreat to this fortress, you know, fortress America. They talk
about the Western world, and there was involved for them
is all of the Americas. And for instance, Predident Trump
appointed a point and first minister. He's a Latin, Marco Rubio.
He is married to a Columbian lady. He knows very
(06:27):
well Latin America. He's a friend of many politicians in
the region. He's second in command. Also was a former
ambassador to Mexico, and when he was a young guy,
he was the son of the ambassador, the US ambassador
in Chile, in Venezuela and Paraguay. So he's also a
guy that knows perfectly well what's happening in the region.
(06:47):
So for the first time you have a team inside
the White House that really knows Latin America and knows
the process, the minuses who is who and so why
would to say that the US will try to enhance
its relationship with Latin America, especially its economic relationship. Well,
(07:11):
the US has already signed retrade agreements with several Latin
American countries. The first one was the Chillian one, but
not the only one now, So I would say that
the US, probably if it wants to retreat from the
rest of the world, needs in a way Latin America needs.
Latin America's markets, needs its Latin America's demography needs Latin
(07:35):
America's commodities. This could be the beginning of interesting times
for Latin America. I agree with that.
Speaker 1 (07:41):
And it also one more thing you didn't mention in
that list was Latin America's high end manufacturing abilities. So Mexico,
for example, is turning itself into a high end manufacturing hub.
Speaker 2 (07:51):
Or we talk about.
Speaker 1 (07:53):
Friend sharing and close shoring, and Mexico is the obvious
home for that kind of maney for sure.
Speaker 2 (07:58):
And actually one of the interesting things about that in
America is that in a way you have had thirty
years of economic reform. Really the microeconomic reforms began in
Chile in the seventies, eighties and nineties with what they
called the Chicago Boys. You know, it was a free
market reform, the regulation, privatization, opening up the economy. Many
(08:19):
other lat the American countries copied Chile was the case
of Peru, partially Colombia in a way partially Mexico too,
because of the success, Chile became a laggard in the
region in the seventies and became one of the wealthiest
countries in the region in the late nineties and during
the first decades of this century. So countries followed that path,
(08:44):
and even the two giants the region, you know, Mexico
and Brazil, have reformed a lot of their institutions, especially
macro institutions, so they have now central banks which are
quite independent. In the case of Brazil, you don't have
hyperinflation anymore. In the case of Mexico neither. The last
(09:04):
country probably to have hyperinflation was Argentina, and it seems
that with President Milay they are away controlling the beasts,
the fiscal beasts and the hyperinflation beasts. So in a
way for the US it makes a lot of sense
to integrate more with this region. But this, as you mentioned,
part of this reform is that some countries, especially Mexico
(09:27):
and Brazil, have now very high end manufacturing activity. But
you have the carry industry of course in Mexico, but
for instance, in Brazil you have a company like Embraer
which produces airplanes, and they produce commercial airplanes that are
gaining market sail all over the world, and they actually
they are benefiting from the problems from Boyling and partially Airbostole.
(09:51):
Now they are selling actually a military transport airplane to
NATO countries Embryer. So really you have very interesting industrial
companies in the region.
Speaker 1 (10:02):
Yeah, then you have one thing that we haven't mentioned
yet is a slightly lower level of debt risk than
you might have and some what we consider to be
very developed countries. So debt to GDP ratios across Latin
America are slightly lower than elsewhere. And I think is
it highest in Brazil. The high in Brazil eighty percent,
but others are below that. When you think that, you know,
UK is one hundred and other western countries are well
(10:24):
over that. That's slightly reasering too.
Speaker 2 (10:26):
Yeah, Chile has around forty percent, Mexico is fifty percent,
Columbia sixty percent, Rules thirty five percent of GDP. So really,
it's true that one of the main reforms that Latin
America has done in the last thirty years is was
called the macro reforms with these independent central banks thanks
to privatizations all over the place. Because we have had
(10:49):
privatizations from Mexico to the Cave Horn. And because of that,
now physcal deficits are more controlled because in the past,
part of the physical defic it's where due to financing
state owned companies, you know, and now many of those
companies have been privatized. They are very productive companies, or
(11:09):
they are partially privatized, and that's the case of companies
like Eco Patrol, the oil producing company in Colombia, or
Petro Bras in Brazil, you know, Brazil. Very few people
realize that Brazil is becoming an oil giant. Today. Brazil
is the largest oil producing country in Latin America. And
now not only Brazil is self sufficient in oil, which
(11:31):
was not the case forty years ago, but Brazil is
becoming a large exporter of oil. And it's partially done
by Petro Brass, but also by new private, mid sized
private companies in the oil industry. Some of those companies,
we invest in them and in their bonds and their inequities.
And it's very interesting what's happening in Brazil in the
(11:52):
oil field.
Speaker 1 (11:53):
And this is really interesting because one of the criticisms
that has been made historically of Latin American economies is
that they have failed somehow to proper monetized their enormous
natural resources. So you know, so many Latin American countries
are so rich and everything from copper to oil, to lithium, etc.
But somehow it hasn't quite been monetized properly. So Brazil
and oil turns out to be a positive way forward
(12:14):
for that. And then of course as we move through
the energy transition, or we attempt to move through the
energy transition, and electricity demand goes up, then all these
other metals wearers, and Latin America is very rich and
weres become an extraordinary resource that with a stable economic background,
can be much better monetized than in the past.
Speaker 2 (12:33):
Yeah, they're actually, to be honest, once again, the poster
child in the region in terms of monetization of mineral resources.
For Chile, Chili created a very pro market and pro
private property mining law in the late seventies early eighties
that produced a boom in exploration and then a boom
(12:55):
in copper production that allowed Chile to become the largest
copper producer in the world and Peruna is the second
largest copper producer in the world. Chile also produces a
lot of lithium.
Speaker 1 (13:06):
As i'spayed some fastson there about let'sium mining and the
environmental problems.
Speaker 2 (13:10):
Lithium in Chile is extracted from what they call the brines,
those are salt lakes in the desert. The same thing
will happen in Argentina actually, and probably impartially in Bolivia.
Bolivia is a country that probably has less monetized its
natural resources. But in the case of Argentina, once again,
what's happening there is very interesting because Argentina is beginning
(13:32):
to monetize it's lithium wealth, it's mineral wealth, but also
it's oil wealth. Argentina discovered a few years ago very
large shale oil and shale gas deposit called Vacamuerta, and
even the Kishners allowed the developer of that deposited because
(13:53):
they realized that Argentina couldn't afford not to develop it.
And Argentina also is very very rapidly becoming the second
largest gas and oil produced producing country in Latin America,
and probably in the next few years Vacamuerta deposit will
become a huge, huge exporter of gas for Argentina.
Speaker 1 (14:15):
Interesting. So we have this region with this stableish economic environment,
stable age, political environment, high end manufacturing, rising middle class,
massive resource potential. So it kind of sounds perfect and
you can get it across the board on a valuation
significantly lower than as family average pe across Latin America
or something like nine times.
Speaker 2 (14:36):
Right, we have risks, We have political risks. There is
still a left wing in American sector. Actually, we just
had primaries for the left in Chile and it was
the Communist party Candya that won the primaries with very
low participation of people, et cetera, et cetera, but it
was the Communist party that one. So you say, well,
(14:58):
there is a risk, but the risk in a way
is embedded invaluation, because we are talking that among emerging markets,
Latin America is trading probably one or one half standard
deviation below the average of the last twenty five years
compared to emerging markets, which themselves are trading at the
(15:19):
very low multiples compared to developed especially in the US.
So really a lot of bad news are embedded in
Latin American asset prices, equity prices, but also you know
interest rates. For instance, there is another asset class which
is very less well known, is latinm corporate credit. In
(15:46):
heart currency. You know, we manage a fund that invests
in Latin art currency bonds. So those are bonds issued
by the blue chips all over the region that issue
bonds offshore using you do it in dollars, and those
are bonds which have a current deal of around eight
percent dollar dominated. And I always say that you have
(16:07):
their sort of a restrating arbitrash because these are cambris
which if they had their headquarters in Miami, they would
be classified as an investment grade. But since they have
their headquarters in South Paolo or in something or Bogota,
they are high yield. Yes, you have a lot of
(16:28):
assets which are very interesting training at low multiples or
high yields. So with a lot of add news and
budded enter prices and with a you, I would say
good stories, you know, good company stories, good macro stories.
Probably people have a lot of investors don't realize the
interesting things that that happen year.
Speaker 1 (16:50):
Let's talk a little bit about how you invested and
where you invest at my fun fact of the day
that someone told me this morning, as it only takes
an hour longer to fly from London to South Paler
than from Power to Mexico City, so you know you
are covering an insanely large area when it comes to
looking at companies, and your website tells me that the
(17:10):
company that you fund managers are visiting two hundred companies
a year, so you must be spending most of your
life on an aeroplane, are you? How are you choosing
companies to invest in?
Speaker 2 (17:19):
Yeah, we use several techniques, O say. First, of course,
we try to know very deeply the region, so we
travel a lot. We have a lot of also a
network of friends, i would say now at the end
of the days, all over the regions. So we have
been vesting in the region for the last forty fifty years.
(17:39):
Lambia my company has ninety years history, so we have
been helping Chileans invest in the region for many, many years.
Of course, we have the advantage of the language, so
even if it's a very huge market in terms of
hours over the plane, we most of us speak Spanish
or Portuguese or port tool which is sort of a
(18:01):
blend between the Brazilian Portuguese and our Spanish, so we
we tend to understand ourselves, so we have a sort
of a common culture, even if it's the mex Mexicans
are very different from Chileans, and Chili's are very different
from Peruvians and Colombians, but we have the same language.
Then of course we use a very sophisticated i would
(18:22):
say quant model to get new ideas and control risk.
And so with the quant model, we see what are
the i would say most interesting companies all over the region,
and then we travel. You know, we have our analysts
are located mostly in Santiago. We have some analysts in Lima,
some analysts now in Argentina too, but we travel a
(18:43):
lot and also a lot of Latin American companies come
to Santiago. Santiago has become sort of a pension pub
you know, Chile has around three hundred and fifty billion
dollars in pension funds undermanaged.
Speaker 1 (19:00):
Recently been some significant reforms to depends and system in
Chile right which means that there should be going forward
significantly higher flows into the actual market.
Speaker 2 (19:09):
And in Mexico. That's another interesting thing that has happened
in the last I would say thirty years, is that
for the first time in latinin history, you have local
investors in local currency which are investing for the long term.
For instance, in the past, when a Latin blue chip
(19:30):
needed money, they needed to issue in dollars, because it
didn't they couldn't issue bonds locally. Now in many of
our markets, Mexico, Peru, Chile, Brazil, you have an internal,
wide developed bond market in local currency, which is the
(19:50):
biggest investors are institutional investors, and that has helped a
lot in terms of reducing the risk, the macroeconomic risk,
because the typical microeconomic risk that Lat'm facing the past
is that suddenly you have commodities coming down to price
and so the effects you know, the currency is devalued,
(20:12):
but you also had a lot of external debt government
and also corporations. Now you still have volatility in the
prices of commodities. That's normal. Part of the death of
local corporates, of local banks and local government is issued
in local currency, which.
Speaker 1 (20:31):
Must have been helpful for Mexico and Brazil last year
because both so that currency is weakened substantially.
Speaker 2 (20:37):
That's right, that's right, And in the case of Chile
to Perutu, today I would say the cost of capital
of many of local corporates is lower than in the past.
If you consider that now they do not need to
hedge their external debt because they are issuing bonds in
the local markets and that's helping a lot.
Speaker 1 (21:00):
Quite not about Argentina, but can you imagine any of
your funds investing in Argentina because they don't at the moment,
you don't hold Argentina and equity.
Speaker 2 (21:08):
Well, we know, we invest, especially in Latin Argentina's bonds,
corporate bonds, and those are dollar denominated corporate bonds. So
we have core bonds of companies like YPF, you know,
the oil producer in Argentina, the one that is producing
the oil in Baca Guerta, or another oil producing companies
(21:28):
like Pampa or Vista. Lately, we are beginning, especially since
we realize that the Milai reforms are going on track.
They're working, they're working. We are beginning very slowly to
invest in some equities. Additionally, what happens is that you
have some Latin American companies, especially the Chilian ones, that
(21:50):
have Argentina and assets which until now they were valued
at zero. So you have a company in Chile called Senkosuits,
one of the largest retailers in Latin America. They are
in supermarket, hypermarket department stores, do it yourself stores, and
they are one of the leading companies in all those
(22:12):
fields in Chile, in Peru, in Colombia. They even have
a high end supermarket in the States. But probably in
the mid nineties, one of the largest assets of sen
Cosut was Argentina and they still have it. They still
have it. The problem is that in the last twenty
years investors have said, Okay, we're going to value those
(22:35):
assets in Argentina zero. We don't count on them now
that Argentina is going up. These guys have a huge
supermarket hypermarket business in Argentina, they have a do it
yourself retail stores in Argentina, they have males in Argentina,
and actually when you buy the Argentina ETF, you are
(22:57):
buying also sen Cosuit, for instance, the co Oak Butler
in Santiago, which also has a huge position in Argentina.
Once again, in the past everybody said, okay, let's consider
those Argentina and assets as valueless. You know, they're worthless,
so we're not going to value and both the Yao
and Dina that's the name of the company, which also
(23:19):
has bottling operations in Brazil and in Paraguay. But now
suddenly the boatling operations in Argentina are beginning to be valued,
so you.
Speaker 1 (23:29):
Can get access to the Argentinian market without having to
buy an equations in Argentina.
Speaker 2 (23:34):
Sorry, you have a company like Medcaalo Liver. Mercalo Liver
is the largest e commerce company in Latin America. Actually
it was founded by Argentinians, which shows Argentinians have an
incredible human capital resource. All over Wall Street is full
of Argentinians. You know. Merkelo Liver was founded by our
(23:54):
Argentina entrepreneurs. It's located in the US, so that it's
incorporated in the US under US law. But now it's
the largest e commerce company all over the region in
Latin America, and it has huge operations in Argentina. Once again,
if Argentina begins to go up to grow to consume market,
delivery will enjoy a lot. What will happen in Argentina.
Speaker 1 (24:18):
Do you have a favorite market among the other main
markets in Latin America. You live in Chile.
Speaker 2 (24:23):
One of the advantages of living in Chile is that
we do not have Brazilian home bias or the Mexican
home bias. But since we're the smallest country of all
of the large ones in Latin America. We have to
invest in Brazil, we have to invest in Argentina, we
have to invest in Mexico. And in a way more
than being a lot of a country in itself or
(24:45):
a market, we try to fall in love with companies
and we find incredible companies in Mexico, in Brazil, now
in Argentina, to in Peru, you have very good companies.
The market is smaller in prou less liquid, but you
have an incredible bank like the Creditor Peru, which is
a very very well run bank. You have good stories,
(25:08):
you know, in the retail sector in Peru. You have
good banks in Colombia too. We are a very bottom
uped house. We do a lot of research. We try
to really meet all the companies with the senior management.
We build very sophisticated I would say evaluation models. So
in a way we try to fall in love companies.
Speaker 1 (25:26):
Everyone hates it when I asked this question. Everyone hates
to have to peck one. But if you're falling in
love with a company, what are you most in love
with at the moment?
Speaker 2 (25:34):
We like very much mercaal Oliberty. You know, this e
commerce giant in Latin America. We like their growth, We
like what they're doing in the fintech area. We like
also Empire, you know, the industrial giant in Brazil which
builds very good quality planes. Also is in the defense area.
But we like also commodity producing companies like Petro Brass.
(25:55):
You know, Petro Brass has an incredible dividend yield, it growing.
You know what is the yield the tough one today
Paturize is probably yielding between eight and nine percent per year. Lovely,
our portfolio is yielding around six percent, so you have
yield in Latin American you know, a divon yield. There
is a bunch of companies that yield more than ten percent. Now,
(26:16):
our portfolio have a mix of high devn yielders and
also high growth like Mercaaloibri would be a high growth company.
Also a very interesting internet bank called new Bank. New
Bank now is a huge bank in Brazil. It's entering
the Mexican market. It's entering also the Argentinian market. So
(26:37):
you have also technological companies in the region. You have
a company called Totus in Brazil which is an ERP
you know, enterprise reserve, especially for mid sized companies. You
have very good quality industrial companies. You know, we have
two funds. You know, we have a large LUGP fund,
but also we have a small meatcap and ditricity. With
(27:00):
a small meatcap fund is that you have less less commodities,
less banks, and more industrial companies, more healthcare. You have
a very interesting companies in the healthcare. So really with
so strange, Yeah, we have most of the sectors present
in the index.
Speaker 1 (27:17):
Brilliant. Well, I think you probably convinced everybody that's to
do it. You mentioned the book earlier, the closing of
the American Mind. Are you a agree? What are you
reading at the moment?
Speaker 2 (27:28):
Oh? Well, I am reading a book about Bob Francis,
which was written by Javier Circa with a very famous
Spanish author.
Speaker 1 (27:36):
Turns great, we'll put that on everyone summer reading less.
Thank you very very much, indeed, we really appreciate you
coming on.
Speaker 2 (27:42):
Thankre Maturin, and I hope I convinced someone to get
a view in the region.
Speaker 1 (27:53):
Thanks for listening to this week Marin Jog's Money. If
you like us a rate review and subscribe by every
listening to podcast and keep sending questions or comments Marimani
at Bloomberg dot net. You can also follow me and
John on Twitter or x. I'm at marianeess w and
John is John Underscores Epect. This episode was hosted by
me Marin Suset Web, produced by Samasadi and special thanks,
of course to host it.
Host
Merryn Somerset Webb
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