Latin America not to be overlooked in the pivot from China

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Investors overlooking Latin America in favour of south-east Asia may miss out on the region’s long-term growth potential and its attractive investment opportunities, although risk management is key. China’s direct investment liabilities, an indicator of foreign investment inflows, dropped by $14.8bn in the second quarter of this year.

As global investors shift their focus away from China, much of the attention has centred on south-east Asia, with countries like Vietnam, Thailand and Indonesia emerging as key beneficiaries.

However, in the race to diversify supply chains and tap into new markets, Latin America remains a region that is often overlooked. This is a mistake.

Latin America offers a unique blend of opportunities and challenges that make it an essential destination for investors seeking long-term growth and diversification.

One of the most compelling reasons for investors to consider Latin America is its proximity to the US, the world’s largest economy.

Mexico, in particular, has benefited from its position as a nearshoring hub for US companies looking to reduce their dependence on distant Asian supply chains.

The US-Mexico-Canada Agreement (USMCA) has further solidified Mexico’s role as a key player in North American manufacturing, particularly in sectors like automotive, electronics and aerospace.

Major corporations such as General Motors and Ford have expanded their operations in Mexico, drawn by the country’s skilled workforce, competitive costs, and logistical advantages.

Beyond Mexico, other Latin American countries are also stepping up to the plate.

Brazil, the region’s largest economy, offers significant opportunities in agriculture, energy and technology.

As a leading exporter of commodities such as soybeans, coffee and iron ore, Brazil is well-positioned to benefit from global demand for natural resources.

Additionally, the country’s tech sector is rapidly growing, with a burgeoning fintech ecosystem and increasing investment in digital infrastructure. Companies like Nubank, the region's largest digital bank, have attracted significant capital, demonstrating the potential for tech-driven growth in Latin America.

Chile, often referred to as the “Switzerland of Latin America”, offers a stable and business-friendly environment with a strong focus on renewable energy and mining.

As the world's largest producer of copper and a leading exporter of lithium, this nation is at the forefront of the global transition to clean energy. Investors looking to capitalise on the growth of electric vehicles and renewable energy should not overlook Chile’s strategic importance in the global supply chain.

Colombia, too, is emerging as an attractive destination for investment, particularly in sectors like oil and gas, tourism and infrastructure.

The country has made significant strides in improving security and governance, making it a more stable environment for foreign investment. With its strong trade ties to the US and growing middle class, Colombia offers considerable potential for investors seeking growth in emerging markets.

Challenges and risks While Latin America presents compelling opportunities, the region is not without its challenges.

One of the most significant risks in Latin America is political instability. Countries such as Brazil, Argentina and Venezuela have experienced periods of political turmoil that have disrupted economic growth and deterred foreign investment.

For instance, Brazil's political environment has been marked by corruption scandals, shifting policies, and contentious elections, creating uncertainty for investors. Similarly, Argentina has struggled with economic mismanagement and populist policies that have led to currency crises and defaults, making it a challenging market for investors to navigate.

Economic volatility is another key challenge in the region. Latin Amercia has a history of boom-and-bust cycles driven by fluctuations in commodity prices, inflation and external shocks.

Countries heavily reliant on commodity exports, such as Brazil and Chile, are particularly vulnerable to global price swings, which can lead to significant economic instability. In Argentina, high inflation and currency depreciation have made it difficult for investors to achieve stable returns.

Managing these risks requires a deep understanding of the region's economic dynamics and the ability to adapt to rapidly changing conditions.

Regulatory uncertainty is also a concern for investors. While many countries in the region have made progress in improving their business environments, challenges remain.

Complex and sometimes inconsistent regulations can create barriers to investment, particularly in sectors like energy, infrastructure, and mining. Investors must be prepared to tackle these regulatory challenges and engage with local governments to ensure compliance and minimise risks.

Emerging middle class Despite these challenges, Latin America’s growing middle class presents a significant opportunity for investors.

As millions of people in the region move into the middle class, demand for consumer goods, services, and infrastructure is rising rapidly. This demographic shift is creating new markets for companies in sectors such as retail, healthcare, education and financial services.

In Brazil, for example, the expanding middle class is driving demand for everything from smartphones and cars to financial services and healthcare.

Similarly, in Mexico, the rise of e-commerce and digital banking is transforming the retail and financial sectors, offering investors new avenues for growth. Companies like MercadoLibre, the region’s largest e-commerce platform, and CEMEX, a leading building materials company, are capitalising on these trends, demonstrating the potential for growth in consumer-driven sectors.

The region’s young population is another asset. Latin America has a median age of around 30, making it one of the youngest regions in the world.

This demographic advantage provides a strong foundation for future economic growth and innovation. As the youth become more educated and tech-savvy, they are driving the adoption of digital technologies and creating new opportunities for investors in the tech sector.

Investors who overlook Latin America in favour of more established markets like south-east Asia may miss out on the region's long-term growth potential.

The key to success lies in understanding the nuances, balancing risks with rewards, and taking a long-term view.

In a world where supply chains are being reconfigured and new growth markets are emerging, Latin America stands as a region full of promise. For those willing to look beyond the headlines and dig deeper, the opportunities are waiting to be seized.

Nigel Green, deVere Group CEO and founder

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