Investing in the smaller markets of Latin America

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Investors can get exposure to natural resources, technological innovation and emerging consumer strength via idiosyncratic opportunities in this region.

Brazil may be the largest economy and deepest stock market in Latin America, but that is not to say that there aren’t rich investment opportunities across other parts of the region. In countries such as Colombia, Argentina or Chile, investors can get exposure to natural resources, technological innovation and emerging consumer strength.

Many of these opportunities are idiosyncratic and occur in unlikely places. For example, Argentina may not appear to be a natural place to look for investment opportunities. Inflation is running at around 270% year-on-year and there are multiple economic imbalances. We visited the country in January, a trip that further instilled our cautious view of the market.

However, Argentina is also home to a number of the region’s leading technology companies. This includes a pan-Latin American ecommerce platform and a global software development company. Neither has anything to do with the fortunes of the Argentinian economy but both have unique assets and interesting prospects. It takes an active investment approach to uncover these options.

The region also offers an abundance of natural resources that are often overlooked. For example, we have previously held a Canadian-based mining company that owns the Fruta del Norte gold mine in Ecuador – a trailblazer in responsible mining.

These unique natural resources are also to be found in Chile. Chile is the world’s largest copper producer, with around one-quarter of the world’s production. It is also the world’s second largest producer of lithium, with a 30% share of world production. These resources are vital for the energy transition, with copper playing a vital role in electrification and lithium an important component in battery technology.

Investment opportunities are also available elsewhere. Columbia saw a significant post-pandemic rebound in its economy but has been forced into a readjustment in 2023 and 2024. However, as inflation slows and interest rates drop, we believe there may be better times ahead. We have a holding in the banking sector, which is a result of bottom-up stock specifics, but we believe the improving outlook could boost consumption and supporting economic activity.

It is the same in Panama, where we hold a budget airline, which acts as a hub for the whole of Central America. It may benefit from rising consumer wealth across the region.

Mexico is also a source of long-term investment opportunities and diverse investment choices. It is a key beneficiary of the friend-shoring of global supply chains, which is supporting its economy and creating options to invest for growth.

The political and economic backdrop has to be right and we naturally move away from areas of significant social unrest or political disruption. The key for investing in fast-growing Latin American economies is to ensure the successes outweigh the failures. We do this through forensic, on-the-ground research and diligent risk management.

Christoph Brinkmann is co-manager of the BlackRock Latin American Investment Trust. The views expressed above should not be taken as investment advice.

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