Issue #5

Latin Stock Investing | April 9, 2009

Who would have thought more IMF lending to Latin America could be considered a good thing? The leading Group of 20 Nations Summit promised to add $1 trillion to the lending power of the International Monetary Fund and World Bank. This capital adds extra resources for trade finance and creates another global growth engine. Naturally, the direct winners are likely to be the most viable emerging and developing countries. Ultimately the leading nations are the real eventual beneficiaries as they will experience higher activity too.

While the impact of this will really be felt in 2010, the reaction in Latin America has already been positive. Mexico's finance minister has said Mexico would ask for over $47 billion from a new IMF credit line. With a regional history of repaying off IMF debt, expect more countries in South America to take advantage of additional credit lines to service their economies.

What does this mean for investors now?

The stock market in the US and in major Latin markets appear to be bottoming. While prices have firmed, the earnings results at the individual company levels have not. The upcoming quarter will test the endurance and stomachs of many investors as top managements affirm that the past has been tough but that second half or next year results should be at higher levels.

Regardless of whether you can believe in such promises, my recommendation continues to maintain a defensive posture with solid dividend-paying companies and to gradually build positions in commodity price-sensitive stocks. Yes, I like gold stocks too, as they have fallen in price.

In the LSI Dividend portfolio, which was up 6.7% year-to-date, the newest addition is a dividend-paying energy stock that has been left behind in the move for higher oil prices. The recent portfolio performance represents a full 16% difference versus the S&P500 index over the first three months of the year alone!

Granted that average US-based stock lost 9.5% in the first quarter, but the LSI Growth portfolio again beat the US markets with a smaller 3% loss year-to-date. The latest additions to this portfolio are materials stocks that are poised for positive investor recognition later this year.

Stocks in the emerging markets like China and Brazil are doing much better than the average US equity investment.

Quite honestly, there is nothing wrong with expecting the Latin stocks to generate lower 25-30% gains this year. This is clearly down from past results. The economic disruptions of 2008 have slowed the growth expectations of all countries and companies for 2009. Fortunately, the business outlook is still better in the emerging Latin American markets than in the US, as I discuss in this issue.

So next time you can't stand the news in the United States markets, check out the hot stock returns in Latin America.

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Best wishes and happy trading

+ Rudy