Argentine Stocks May be Ready for a Rebound

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After defaulting on its debt in 2001, Argentina was shunned by international investors. Last year, Argentina was booted from the MSCI Emerging Markets Index. However the economy of Argentina may be ready for a rebound and catch up with the growing Latin American economies of Brazil and Colombia. In2001, Colombia was considered a failed state but since then the stock market has shot up fifteen times. Similarly Brazil could not service its debt in 1999 but now is the region’s and also one of the world’s red-hot emerging markets.

According to a recent article in Bloomberg Businessweek some investors are betting on a strong recovery in Argentina. The Merval stock index is up 163% since the credit crisis lows in November 2008.

Merval-Index-Performance

Some of the reasons for the optimism mentioned in the article include:

  • The Argentine government is trying to raise cash and build good relations with global creditors ahead of the presidential elections in 2011. After the rescue of Greece with an estimated $1 Trillion package, the outlook for Argentine debt swap deal is positive.
  • The outlook for the export of agricultural products to other emerging markets is high
  • Due to the availability of plenty of fertile lands, 54%  of Argentina’s export is agricultural
  • Publicly-traded banks are attractive compared to peers in the region

In terms of investment opportunities, there are a few ADRs that investors can consider. BBVA Banco Frances (BFR) has a market capitalization of $1.1B.The current yield on its ADR is 0.98% and the beta is 1.5. Banco Macro(BMA) pays a dividend of 2.38%. Oil and natural gas company YPF SA (YPF) is down about 18% YTD. The current yield is 7.94%. Telecom services provider Telecom Argentina(TEO) has a 11.04% dividend yield. Some of the other Argentina ADRs to review include oil and gas producer Petrobras Energia SA (PZE), food producer Credud (CRESY)and electric utility Edenor(EDN).

How To Invest In Foreign REITs?

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Outside of the U.S. the REIT industry is still  in its infancy. For investors looking to diversify their portfolios REITs offer an opportunity to gain exposure to a different asset class. A simple and easy way to invest in foreign REITs is via ETFs.

Foreign-focused ETFs with their distribution yields as of May 27, 2010:

SPDR DJ International Real Estate ETF(RWX)
Distribution Yield: 3.97%

SPDR Dow Jones Global Real Estate ETF(RWO)
Distribution Yield: 3.60%

Cohen & Steers Global Realty Majors ETF(GRI)
Distribution Yield: 4.69%

iShares S&P Developed ex-US Property Index Fund(WPS)
Distribution Yield: 5.01%

iShares FTSE EPRA/NAREIT Asia Index Fun(IFAS)
Distribution Yield: 5.03%

WisdomTree International Real Estate Sector Fund(DRW)
Distribution Yield: 9.47%

Claymore/AlphaShares China Real Estate ETF(TAO)
Distribution Yield: 3.34%

iShares FTSE EPRA/NAREIT Europe Index Fund(IFEU)
Distribution Yield: 3.09%

Some of the emerging countries such as China and India have real estate bubles. However there many countries such as Brazil, Malaysia, etc. where the demand for housing is booming and prices are affordable. Hence investors can allocate a small portion of their assets to foreign REITs.

Disclosure: Long RWX

Mexico Offers Excellent Value in Latin America

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The S&P 500 is down 3.7% YTD as of market close Monday. Closely tracking the U.S. market is Mexico’s IPC All-Share Index which is down 4.2%.

Due to the strong ties between U.S. and Mexico, the Mexican economy moves up and down in tandem with the U.S. economy.However due to weaker fundamentals Mexican investments suffer greatly when the U.S. underperforms.

The economy of Mexico is finally improving after the worst recession in almost a century. Mexico’s international reserves reached a record $95. 7 billion in March. The oil and manufacturing sectors are showing strong improvements and Mexican exports increased by 39% in March relative to March 2009. The automotive industry, one of the most important industries in the country, is recovering strongly with production and exports up in the first four months of this year.The unemployment rate in the first quarter stood at 5.3%. (Source: CEIC Macro Watch).

Accordingly The MSCI Mexico Index has recovered strongly and has currently reached the pre-credit level. However when compared to Brazil, Mexico took a longer time to reach this level from the October 2008 lows as the chart shows below:

Country Performance: Mexico vs. Brazil

Mexico-Brazil-Performance-3-Years

Source:  Financial Express Analytics

Due to the contrast in the pace of rebound between Mexico and Brazil, many value plays can be found in Mexican equities. Some of the Mexican stocks to consider are telecom providers Telemex(TMX) and America Movil(AMX),  airport operators Grupo Aeroportuario del Centro Norte (OMAB), Grupo Aeroportuario del Pacifico (PAC) and Grupo Aeroportuario del Sureste (ASR), cement maker Cemex(CX) and beverage company Coca Cola Femsa(KOF). TMX offers a 5.87% dividend yield now.The three airport operators hold long-term concessions and will benefit as the number of tourists visiting the country increases. In addition to Mexico, Coca-Cola Femsa (KOF) derives a significant portion of revenue from distribution of its products in other Latin American countries.

Another simple to invest in Mexican equities is to invest via the iShares MSCI Mexico Investable Market Index ETF (EWW).