Latin Finance - May/June 2010 - 18

Purchasing Growth
by Ben Miller and Taina Rosa he global shift to emerging markets is quickly trickling down to corporates, and there are three key trends when it comes to investor picks, in both fixed income and equity. Raw materials feeding Chinese expansion, infrastructure and consumer stories are the focus, and cash continues to chase Brazil above all. Investors are pouring pent-up liquidity into companies of all shapes and sizes, particularly on the debt side. Exporters, producers, and financial institutions in the region’s more stable economies offer attractive yields versus developed world peers. As in pre-crisis times, the preference is for solid names with track record. Stalwarts from last year’s study continue to feature in the 2010 LatinFinance survey, including large cap blue chips Petrobras, Vale, Gerdau and América Móvil. Vale does particularly well out of the late March deal with Asian consumers to boost iron ore prices by 90%. We have added a few to reflect changing market conditions or strategic moves, such as Ternium, Femsa and Bimbo. The latter highlights the benefits of savvy M&A coupled with clever use of local and international capital markets to refinance. The rising stars table now includes parts of the Eike Batista empire: OGX, EBX and OSX. The latter’s ill-fated IPO should give investors pause for thought on equity valuations, but the story is appealing for those with a long view. We have also added Mexico-based fledgling multinational Mexichem, miner Southern Copper, Brazil real estate player MRV, food companies JBS and Brasil Foods, pulp and paper play Fibra, and construction materials firm Cementos Argos. The moves reflect an underlying push towards commodities, construction

Oil, mining, infrastructure and consumer stories are most popular with investors this year. Also in favor are companies growing through acquisition. The overall Brazil bias is clear.

Feeding Chinese expansion: LatAm raw materials are an investor favorite and feeding and accommodating a rising middle class, especially in Brazil. For those with a stronger constitution, we have selected a new group of more challenging companies in tougher sectors and/or countries, whose securities could present opportunity. These include TAM, Trump Ocean Club, Arcos Dorados, Rossi Residencial and Odontoprev. about their equities. “We are overweight on commodities, on companies like Vale and Gerdau,” says Ben Laidler, head of LatAm equity research at JPMorgan. “Materials’ performance has been driven by an increase in global GDP expectations, which is increasing commodity prices,” he adds. Credit Suisse notes that in the last quarter of 2009, most LatAm companies reported significantly improved earnings, boosted by local macroeconomics and global demand. This more than offset the impact of stronger local currencies on exporters, it adds. “We expect an improving economic environment in the region to continue,” it adds. However, Credit Suisse notes higher costs in sectors including steel, paper, and

Oil and Metals Focus

LatinFinance selects the 2010 portfolio based on sell-side analyst and investor feedback, as well as internal research. Metals prices have shown strong rebound, with perennial blue chip Vale and rising star Southern Copper among those that have seen great demand for recent fixedincome offerings, as well as bullishness

18 LatinFinance

May/June 2010

Latin Finance - May/June 2010

Table of Contents for the Digital Edition of Latin Finance - May/June 2010