Thursday, April 12, 2007

Investment Opportunities - How to Enter the Game

Since the arrival of Colombus, Cortes and the subsequent invasion of the conquistadors, Latin America has suffered a difficult past and struggled to establish an open and fair democracy with modern economic policies. Cortes and his men in 1518 led the destruction of Mexico's Aztec Empire, followed by Pizarro's brutal annihilation of the Incan Empire in modern day Peru. A similar course of events in Brazil, and other Latin America countries completed the change in history. Unfortunately, nearly 500 years later, corruption and inequality are widespread, arguably as a direct result from the conquest, its poor leadership from the Spanish, the slow healing wounds from the conquest, and the reluctance of the European blood to share the wealth.

In 2007, Latin America shows some promising signs of change, both in economics and government reforms. With this slow social change, comes a rather rapid economic and market change with potential opportunity for foreign investors. First, let's sort out the good from the bad in terms of economic and investment - based mainly on leadership and the division within Latin America of left and right, or closed and open economies. Major countries with less prospects include Ecuador, Venuezuela, and Paraguay. While those countries in Latin America with a wide margin for growth are Brazil, Argentina, Chile, Peru, Colombia and Mexico.

How to enter this market, diversify your investment, and take part in the growth? Without expanding your business into Latin America, international investors have the opportunity to purchase these shares directly via an ETF (exchange traded fund). We recommend the iShares MSCI Brazil Fund (EWZ) which has a 3 year annualized return of 46.25%. Or, for Mexico, the iShares MSCI Mexico Fund (EWW) with a 3 year annnualized return of 40.15%. Clear signs that indeed the Latin American markets are emerging, and moving at a good pace. For a more diversified and simple approach to enter these markets, iShares offers the Latin America 40 Fund covering several countries and sectors.

Interested in a more direct investment, or expanding your operations into Latin America? We offer some general advice. Make every effort to establish relationships or offices in one or more of Latin America's major cities: Mexico City, Bogota, Sao Paulo, Buenos Aires or Santiago. It's safe to say that nearly all of the action is here. Learn the language, hire someone who knows the culture and the language, or hire an outside consultant such as Cinnamond Global to screen opportunity and liason with the foreign business. Be skeptical and approach offers with caution in this market with slack regulation. Understand the risk-reward relationship. Lastly, when dealing with a small or medium-sized firm in Latin America, and especially when dealing primarily with an individual, get a professional background check from a firm like Wymoo who can validate the company and contacts.

Buena suerte,

A. Hathaway
Different Themes
Posted by the Investigators

This copyrighted article was written and published by the editor and site author, A. Hathaway, or other guest private investigator, expert or contributor as noted.