In recent years diversification into foreign stocks has paid well for many US investors. Now that the recession has hit home throughout the world it seems almost everyone who did not sell early has taken a loss. What factors will influence regional economic growth and recovery and where?
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Whether you are interested in foreign stocks or US multinationals knowing a bit about prospective growth in regional economies will help you target your investments. Here we take a brief look at Latin America.
Economic Perspective
No matter how bad the economic times there will always be a recovery. So, looking at Latin America, which regional economies are ready for growth? Who has money? Where are there free trade areas? Where are things going to get better?
Who Will Have Cash or Access to Credit for Regional Growth?
Not every bank in the world got into sub prime mortgages. In the little country of Panama at the bottom of Central America, for example, the local banks are solvent. The local banks are still just as conservative as before so the government is sponsoring an economic stimulus package to make sure that loans get to the local business community. In 2008 Panama added jobs and its economy grew by about 9%. A composite of economic projections puts Panama’s growth for 2009 a little above 5%, ahead of the regional growth for the rest of Central America.
Where is Regional Growth Less Dependent upon Trade with North America and Europe?
As North America and Europe deal with their own economic problems they import less. Regional growth in parts of Latin America is protected to a degree by three free trade areas.
There are three free trade areas in Latin America. These are the Andean Community, the G-3, and the Mercosur.
The Andean Community has 120 million people (Colombia, Ecuador, Peru, and Bolivia).
The G-3 is now only Colombia and Mexico as Hugo Chavez withdrew Venezuela.
The Mercosur comprises 263 million people and includes Argentina, Brazil, Paraguay, and Uruguay. However Bolivia, Chile, Colombia, Ecuador, and Peru have associate status and Venezuela wants to join.
There is periodic talk of a South American free trade association on the model of the European Community.
One might expect to see South America emerge from the recession stronger and less dependent upon the Northern economies. Whether one does the homework to invest in local stocks, invests in multinationals doing business in South America, or invests in small cap funds taking advantage of regional growth Latin America will like do well coming out of the recession.
Things Are Getting Better in Colombia
A unique situation is Colombia. Colombia is slowly emerging from a forty year nightmare of civil war. Try to find a guide for a visit to Colombia. You cannot. It has been a dangerous place for over a generation. Now note that Colombia is part of each of the free trade groups mentioned above. Also read the news about how Colombia is gradually resolving its civil war.
The demonstrations for peace throughout Colombia last year were reminiscent of the scenes in Czechoslovakia during its “velvet revolution.”
Perhaps the best foreign stock, regional growth bet in Latin America might just be hiding in Colombia which has free trade agreements with countries from Mexico to Argentina.
Regarding US multinationals, investing in regional growth one might look at 3M as well as Proctor and Gamble which are everywhere and Caterpillar which is everywhere there is construction – like the Panama Canal Expansion project. Bechtel, by the way, is in the bidding for building the locks for the “third lane” of the $5.25 Billion Panama Canal Expansion.
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