Focus on South America

31 March 2014

A chiaroscuro continent, South America has traversed two decades of growth and incumbent crisis, forcing investors to carefully consider their steps; the countries that have contributed to growth in the region certainly include Colombia, which is enjoying dramatic economic growth without inflation, fueled by the infrastructural projects worth approximately $55 billion (roughly 15% of GDP) that the government has announced. The local stock market boasts five or six very promising names, but the banking and airline sectors are also interesting.

On the other hand, Chile is undergoing a rocky stage. Pension funds, for example, are selling assets, local currency is depreciating and the market is not showing confidence in the current administration. This is without considering that 55% of exports relate to copper, and mining companies are facing  higher costs  that erode their  competitiveness.

With the world cup soccer games not one hundred days away, Brazil is the South American country that stands out in the minds of not only soccer fans but investors as well. In the presidential elections to be held October, it is probable that Dilma Rousseff will be re-elected, with an economic policy based on growth in consumption by shifting the tax burden. However, this policy is not sustainable, and adjustments should be made through structural reforms, but that would entail additional economic slump. Inflation data are particularly worrisome (the target is 4.5% while the rate continues to stand at 6%), along with the high current deficit (4% of GDP, to be cut to 2%). The situation is very delicate and is exacerbated by the fact that the country is in the middle of an energy crisis creating general unease. This is without considering the fears not yet been overcome with respect to the Brazilian economy, which will see potential repercussions if the Argentinean currency depreciates.

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