Institutional investors pick the markets of Mexico, Colombia and, with their fingers crossed, even Brazil as having the best prospects for 1994.
While Mexico might be an obvious choice, given the passage of the North American Free Trade Agreement, it also lit a fire under several other markets in Latin America, as it helped assure economic progress for the region.
The trade agreement, which took effect Jan. 1 for the United States, Mexico and Canada, is expected to expand soon to include Chile and Argentina.
Other trade pacts have been, and will continue to be, signed in Latin America, even as other favorable signs, such as lower interest rates, aid South America's economies and markets.
Political developments also seem broadly favorable - with the possible exception of the December election in Venezuela, where voters elected populist Rafael Caldera as president. But in Chile last month, the country overwhelmingly elected Eduardo Frei as president, a move that should sustain Chile's current democratic and reformist policies.
Presidential elections are due this year in Colombia, Mexico and Brazil. And already in Mexico, the ruling Institutional Revolutionary Party appears to be assured re-election - meaning that the reformist policies of President Carlos Salinas and his predecessor will endure.
Brazil remains the unruly giant of Latin America, as it struggles to contain rampant inflation and work within its fractious democracy. But the populous, richly endowed land bodes considerable promise for investors.
In terms of economic growth, the region will not measure up to Southeast Asia's red-hot level, but in at least three countries - Colombia, Mexico and Venezuela - 1994's real GDP growth should be higher than its 1993 level.
Officials at BT Securities Corp., New York, forecast real GDP growth of 4.2% in Argentina, 2.3% in Brazil, 3.9% in Chile, 4.1% in Colombia, 2.5% in Mexico, 4.5% in Peru and 1.2% in Venezuela.
Looking more closely at the three favorites:
This ancient land of the Mayans is benefiting from a range of favorable economic and political events. Chief among these, of course, is NAFTA, which bodes yet-lower inflation and interest rates as well as increased direct and portfolio investments.
In addition, a new fiscal stimulus package should help revive last year's feeble economy. According to Bankers Trust Research, the fiscal program includes "a package of tax cuts, new spending and a minimum wage hike totaling perhaps $6 billion, or 1.7% of GDP."
Overall economic growth this year should rise to between 2.5% and 3.5% - up from about 1.1% last year.
On the political front, the IRP's nomination of economic reformer Luis Donaldo Colosio for president has virtually erased political uncertainty. He is widely expected to be elected in August.
Paul White, Latin American portfolio manager of Atlantic Richfield Co.'s pension fund, picks that country as his favorite. Among sectors, he likes the financials, which should benefit from lower interest rates. In infrastructure, he recommends Cemex S.A.; in telecommunications, Telefonos de Mexico (Telmex), a cheap stock in a company with strong growth prospects.
Although this country's stock market roared last year, its further potential hinges on its ability 21
Continued from page 17to correct political and economic ills, including inflation. Brazil boasts a sizable number of well-managed entrepreneurial companies as well as an overall large population and abundant resources. But its economic woes beg to be addressed.
Late in 1993, Finance Minister Fernando Henrique Cardoso unveiled Brazil's seventh economic program since 1986. In its initial stage, the program would cut government spending and raise revenues to wipe out the budget deficit. Among other measures, the program would introduce a new inflation index that could be tied to the U.S. dollar or a basket of other currencies.
It remains unclear how much of the program will be adopted. In the meantime, work on constitutional reform was slowed by a corruption scandal involving high officials.
Investors will be watching these developments, as well as whether Brazil this year is able to finalize a Brady debt restructuring plan.
"I'd be optimistic if Brazil" suffices to "pass a balanced budget, enact some minor constitutional changes and the economic team brings inflation down to 20% a month," says ARCO's Mr. White. "Then, if a new president is elected with more of a mandate, we may see more dramatic changes in 1995."
For this year, economic growth should run between 2% and 3%. Among stocks, Analysts at Baring Securities Ltd. favor "the banking sector, which is a beneficiary of the inflationary environment." It suggests Banco Nacional, Banco Itau and Banco Bradesco.
Thomas Tull, principal, Gulfstream Global Investors Ltd., Dallas, suggests Telecomunicacoes Brasileiras SA (Telebras) for its strong growth prospects, and Lojas Americanas SA and Brasmotor SA, in such areas as appliances and autoparts.
Ironically, the death of drug baron Pablo Escobar helped energize this country's small stock market. As narcotics-related terrorism seemed destined to wane, experts saw rising interest by foreign companies in investing in Colombia.
Besides attacking its drug problem, Colombia has been seeking out new opportunities for trade. As Baring reported in December, Colombia, Venezuela and Mexico will sign an agreement this month to eliminate tariffs on 40% of all products immediately, and for all remaining goods within the next five years. Colombia also has "signed an aggressive trade pact with Chile designed to eliminate tariffs on 90% of exports by 1996," Baring reported. "Free trade will be very positive for Colombia's economic growth."
Already, the country is recognized for its fiscal and monetary prudence. Colombia "has never had an acute inflation problem, never reneged on its debt, and its worst budget deficit was 5% of GDP," said Robert S. Gay, research director, emerging markets group of BT Securities Corp., New York.
And, according to Gulfstream's Mr. Tull, Colombian "companies have stuck to their basic businesses - doing what they do well."
Although many companies are closely held, liquidity is expected to increase in 1994. For one thing, "an impressive list of privatizations" is planned for the first half of the year, which Baring believes will "keep investors in the market."
Baring specifically recommends the financial, infrastructure and food sectors, including the stocks of Compania de Cementos Argos, Banco de Bogota, Corporacion Financiera del Valle (Corfivalle), Compania Suramericana de Seguros, Compania Nacional de Chocolates, Gran Cadena de Almacenes Colombianos (Cadenalco) and Bavaria SA.