In 1810, after a long struggle, Argentina, Mexico and other Latin American countries declared themselves independent from Spain. Two centuries on, it is not absurd to say that Spain is dependent on its former colonies, in economic and financial terms, at least.
Spanish companies looking for growth and investors seeking returns are increasingly looking to the jewels of the former Spanish Empire.
Of course, investor infatuation with Latin America is not just a Spanish phenomenon. Companies and portfolio managers in America, Europe and Japan cannot but be impressed by the dynamism of Brazil, Chile and Peru. But Spaniards say that, once again, they are better placed than anyone to benefit from Latin American riches.
Culture, language and a long tradition of involvement in the region – even during its long stretches of economic chaos – are felt to give them leverage. And they will need to make use of all their advantages if they want to compensate for Spain’s sluggish economy.
”We are convinced that we have the Latin American decade in front of us”
The 12th Latibex Forum, an annual event for Latin American blue chips in Madrid, provided an eloquent example of Spanish companies’ eagerness to show off their exposure to the region. Although the conference’s main goal is to present Latin American companies listed in the Spanish capital to international investors, some top names from corporate Spain were there to beat their own drums.
“We are convinced that we have the Latin American decade in front of us,” said Francisco Luzón, a board member of Banco Santander, Spain’s largest financial group.
“I’ve recently met officials from our Latin American operations in Madrid and they were all talking about GDP growth rates of 8% to 10% this year,” remarked Angel Cano Fernandez, the chief operating officer of BBVA, the second-biggest Spanish bank. (article continues below)
“Latin America will be the region with the fastest rates of growth in the telecommunications market,” said Cesar Alierta, the chief executive of Telefónica.
Gas Natural, an energy group, pointed out that fast economic growth is creating a thirst for energy in the region. “There are great opportunities there for a company like ours,” said Salvador Gabarró, its chairman.
It is fashionable for multinational companies to maximise the visibility of their investments in the emerging world, even if these do not play a significant part in their global operations. But for Spain’s corporate champions, it looks like a logical choice.
Francisco de Borja Prado Eulate, the chairman of Endesa, another energy group, told delegates that 40% of the firm’s earnings before interest, taxes, depreciation and amortisation already comes from the five Latin American countries where it operates. The region is also enabling Telefónica to keep shareholders happy by posting record results, even though revenues in Spain, its biggest market, are falling.
The outlook for Spain’s equity markets rests partly on the continuing prosperity of its former colonies – even Brazil was briefly part of the Spanish Empire.
According to Antonio Zoido, the chairman of Bolsas y Mercados Españoles (BME), the owner of the Madrid Exchange, more than 28% of the revenues of the Ibex 35 companies already come from Latin America. But this has not prevented the Madrid Exchange from finding itself in the red as the Ibex lost 15% of its value over the year to November 17.
It is not surprising then that BME is keen to promote Latibex. The Latibex platform allows investors to bypass currency exchanges and the bureaucratic processes that still prevail in the region and has delivered returns of up to 8% so far this year, the argument goes.
”Latin America will be the region with the fastest rates of growth in telecommuni-cations”
But the most daring investors might conclude that the real action lies elsewhere. That is because Latibex’s returns look puny compared with what exchanges in countries such as Colombia, Peru and Chile have delivered. The Santiago Exchange’s main index has increased more than 45% in dollar terms. In Buenos Aires the Merval index is up 35% in dollar terms.
The reason for the mismatch between the Latibex and local exchanges could be that many of the companies that list in Madrid, such as Petrobras, Vale and Pemex, are well known to global investors. And although some hot sectors such as energy, telecoms and, to some extent, financials, are well represented on the platform, others, including retail, construction and mid-sized firms, are less so. Also, Brazil, the country that has more weight in Latibex, has one of the slower-performing equity markets this year, with dollar returns of less than 4%.
The strong performance of stockmarkets in Argentina, Chile, Colombia and Peru is partly a consequence of Brazil’s success since the mid-2000s: international investors are looking elsewhere in Latin America now that Brazilian stocks do not look cheap.
In Chile, too, valuations are high, according to Francisco Errandonea, an analyst at the Chilean subsidiary of Santander, who points to a deceleration of performance in 2011.
But some analysts say that, while China continues to devour commodities and while millions of Latin Americans emerge from poverty every year, there is money to be made in the region’s stock exchanges.
The challenge for asset managers is to convince European investors to follow the lead of Spanish companies and direct a larger share of their portfolios to Latin America. Performing securities have become rare animals and, for once, Latin America is one of the few places to find them.