There is no doubt that the current global crisis has had an impact on Latin American economies, and they have witnessed a degree of contraction in response. But compared to previous global economic contractions or crises, the impact on the region this time has been different and much more moderate. The majority of Latin American countries today, particularly those in which we are heavily invested, have shown a remarkable resilience to external shocks, and we believe there are a number of factors that account for this resilience. The main Latin American markets in which we invest-Brazil, Chile, Mexico, Panama and Peru-are exhibiting responsible fiscal discipline and commitment to a floating exchange rate, market-oriented policies to combat the current downturn, and strong domestic economies.

While the currencies of Brazil, Mexico, Chile and most other Latin American countries have suffered depreciation, the decline in currency value has not triggered a major financial crisis in this region, unlike a decade ago. In previous economic crises, most Latin American currencies were pegged to the U.S. dollar, or had semi-fixed currency exchange rates. This time, thanks to what I consider good macroeconomic management, most Latin American countries have been able to maintain flexible exchange rates. As a result, currencies such as the Mexican peso and Brazilian real dropped significantly against the U.S. dollar, but the devaluations have not caused a major impact on components of their respective economies, such as fiscal accounts, because most of the debt of these countries is not in dollars. The policies and positions of different Latin American governments have allowed them to put into place some emergency programs to support their economies. Brazil, Chile and Mexico, in particular, have been setting up package deals to try to prevent the global economic slowdown from significantly impacting their domestic economies.

In addition, the Latin American region as a whole has a large consumer base to support the demand for goods and services, along with what we consider to be many excellent companies that are at the same time underleveraged and inexpensive.

The portfolio team of FTIF Templeton Latin America Fund looks for companies with a strong market position, competitive advantage versus peers, high corporate governance standards and capable management. Since the team is locally based and carries out substantial proprietary research, it can dig even deeper to find bargains. Many names in the portfolio have no sell-side brokerage coverage, tend to be more illiquid and are smaller than what one may find in an average Latin America-focused portfolio. Most importantly, as value investors, current valuations in Latin American companies are attractive, and we consider this a great time to uncover bargains in the region.

Please click here for more information on the FTIF Templeton Latin America Fund.

Posted: 22 April 2009