For many investors, the notion of emerging markets is closely intertwined with the Asian Tigers, perhaps because of their close proximity to the Chinese economy. Another major emerging economy bloc, found in South America, barely makes a blip on the radar of global investors. That’s likely because of the prolonged deep slump in Brazil, Latin America’s largest economy and the leading trading partner of many South American nations.
But those emerging South American economies not named Brazil deserve a look because, by many measures, they are sowing the seeds of a rising consumer class; are now being overseen by smart, investor-friendly government policies; and have the ingredients in place for sustained long-term growth.
Specifically, we’re talking about Argentina, Chile, Colombia and Peru.
Bienvenido Señor Macri
It’s easy to forget that Argentina at the dawn of the 20th century was the world’s seventh-largest economy, with abundant natural resources that made it an export powerhouse.
But for much of that century the country was dogged by polarized politics, by government policies that penalized wealth and by staggering levels of corruption. During the two-term presidency of Christina Kirchner (2007-2015), Argentina wasn’t an investor-friendly place.
But the narrative changed last November when Mauricio Macri became president and took the nation in an entirely new economic direction. Macri “implemented a lot of changes very quickly, removing tariffs, letting the currency fall, tackling corruption and bringing the nation back to global bond markets,” says Jay Jacobs, the research director at Global X Funds.
Yet analysts caution that those efforts will take time to bear fruit. Indeed, the Argentinian economy is expected to shrink 1.5% this year, says the World Bank, before turning around and growing an expected 3% next year.
To really unshackle the economy, Argentina will need to tackle its current inflation rates of 40%—mainly by retaining very high interest rates. That was the playbook used in the U.S. with great success by the Federal Reserve’s Paul Volcker 35 years ago.
Will Landers, the head of global emerging markets for BlackRock’s fundamental active equity team and the portfolio manager for the BlackRock Latin America Fund (MDLTX), says the high interest rates will be anti-growth in the beginning, but if inflation comes under control in the next 18 months, the Argentinian economy’s growth rate could then begin to accelerate.