Latin America’s Best Bet

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So there we were last summer, my family and I, wheeling along the rolling grasslands of Montana, with the snow-capped Rockies jutting up outside our car’s side window. We crested a hill and suddenly encountered a forest of heavy equipment — graders, dirt haulers and tractors — furiously tearing at the earth.

Our pleasant country road had literally run out. There was nothing to do but turn around.

That’s when the truck with the “Follow Me” materialized in front of us. I threw the rental into low gear as we swerved for miles, like minnows among whales, through a veritable army of earth-moving machines until we found pavement again.

That’s what I think of when I contemplate Latin America for investment. The ground is confusing, daunting even. But the “Follow Me” truck just showed up to give us the way forward.

One of those signs: Argentines just kicked out the left-leaning Kirchner government in favor of a business-minded rival in recent elections. Likewise, Venezuelans came out overwhelmingly against Nicolás Maduro and his socialist Chavista cronies in recent parliamentary elections. Brazilians may yet find a way to impeach their Workers’ Party president, Dilma Rousseff.

I don’t think it means the death of the so-called Pink Revolution, ushered in by the election of Hugo Chavez in 1998. Or that politics in the region are going to shift hard to the right either.

The message from voters is to get the economies of Latin America moving again, with policies that do more to encourage business instead of restraining it. Mexican voters sent a similar message this summer with their midterm congressional elections, allowing President Enrique Peña Nieto’s party to retain a simple majority of votes, and continue the structural reforms in energy, electricity and other key parts of the economy.

But the bigger “Follow Me” comes from — wait for it…

A Bet on the Future

George Soros. OK, I know what you’re thinking. He’s definitely not everyone’s cup of political tea.

But then again, this is the same guy who made billions betting against conventional market wisdom. He’s the guy who once said that, when it came to investing, “It takes courage to be a pig.” Meaning: When you see an opportunity, jump on it with both feet before everyone else does.

For Soros, that means investing $300 million with an Argentine hotel firm. The plan is to build as many as 5,000 new hotel rooms in the continent’s major cities within the next three years.

Here’s why it’s a big deal: Large-scale hotel development is a sign that an economy is maturing. It’s the mark of a country where there’s a sustainable, growing, middle class of consumers who have enough money to spend on services. It means that infrastructure is being put into place — modern seaports, highways, airports — that can supply the flow of customers for hotels. It means a country is facing outward, toward the larger world of international trade.

In other words, Soros’ bet is that Latin America’s growth will continue as a long-term trend, despite all the current economic headwinds we read about every day, such as the strength of the U.S. dollar and the slowdown in China’s appetite for the region’s key commodities.

Ecuador, for instance, crossed a milestone just this week. The country was infamous in financial circles for its status as “most frequent defaulter” among Latin American nations. Yet Bloomberg noted the government repaid $650 million to its foreign bondholders — the first time in its history that it’s repaid global bonds on time. Ecuador, a member of OPEC, will continue to struggle for as long as oil prices stay low. But the bigger point is an emerging economy now trying to play by the rules, instead of throwing out the rulebook.

All Roads Lead to Latin America

For subscribers to Jeff Opdyke’s Sovereign Investor, he’s positioned the portfolio to benefit from the evolution of the region’s most promising economies, such as Mexico. The opening of the nation’s energy industry to outside investment is a huge, often-overlooked change. But so is its breakup of other key sectors, such as electricity (which is expensive relative to what U.S. consumers and businesses pay, and a lot less reliable).

More importantly, Jeff and The Sovereign Society’s offshore assets guru Ted Bauman have long suggested looking at Uruguay and its verdant real estate and farmland as a way to safely invest in Latin America’s transformation. It’s not for nothing that the country has long been called the Switzerland of South America, with a stable government and respect for the rule of law.

As the various countries across South America slowly return to fiscal health, many investors will be turning toward Uruguay — particularly as capital controls are lifted in places such as Argentina. With its stable government and steady economic growth, Uruguay represents a sound investment, offering both asset protection and growth.

What’s the big picture takeaway?

Marked on a chart, Latin America’s growth will always be in fits and starts. It will ever look like the proverbial “hockey stick,” smoothly running up the hard right edge of the page. But the region’s transformation is only just beginning, with profits to be made for investors willing to look beyond today’s headlines.

Kind regards,
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JL Yastine
Editorial Director, The Sovereign Society

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