Published : Aug. 24, 2015 - 18:41
Caught in a years-long economic recession and political turbulence, the Latin American region is largely considered a risk factor in the global financial sector.
But as signs of economic rebound are starting to show, now may be an optimal time for overseas investors to enter the market when the barriers are low, according to a regional expert.
“Some speak of an impending financial crisis upon Latin America, but the truth is that the region is already in the midst of a crisis,” Italo Lombardi, director and Latin American economist at Standard Chartered Bank, told The Korea Herald in an interview.
“The region has been pressed down by a years-long recession, which is very likely to last for a while due to the unstable political situations and fiscal concerns.”
Italo Lombardi
This downtrend is the most conspicuous in the commodity sector as China, the largest importer of Latin America’s metal resources, has seen a rapid decrease in demand, the economic strategist pointed out.
“The interest in the region has nose-dived, which explains the mass capital leak over recent years.”
According to Netherlands-based NN Investment Partners, total capital of $940 billion leaked out of the world’s 19 emerging countries ― including many Latin American states ― over the past 13 months as of the end of July.
Standard Chartered predicted a gross domestic product contraction of 1.8 percent this year and another 1.6 percent next year for the region.
But for those seeking momentum amid a slow-growing global economy, this year and next year is a good time to set foot in the market, according to the banker.
“Currently, not many investors want to expand their share in Latin America, due to the persisting uncertainty, but the market is nearing the point of rebound,” Lombardi said.
He thus took the example of Brazil, the largest economy in the region, which is facing political turbulence, its highest inflation rate ever and possibly an upcoming cut in its S&P credit rating.
“Despite such challenges, the country’s middle class has surged to 55 percent, which means that more than half of the 200 million population want to consume and actively participate in the market,” he said.
Investors targeting the expanding consumer group may now enjoy a lower entry threshold and buy assets or expand into the country, according to the Standard Chartered official.
As for the natural resource market, which has pillared Latin America’s growth for the past decade, the economist predicted a gradual recovery.
“The metal resource industry is heavily dependent on larger economies such as China,” Lombardi said.
While anticipating China to regain momentum, most key countries in the region will experience a GDP contraction varying from 0.6 percent to 2.5 percent next year, he added.
By Bae Hyun-jung (tellme@heraldcorp.com)