The Liontrust Latin America Fund returned -1.9% during the quarter, compared with a return of -0.8% for the MSCI EM Latin America Index and -1.5% for the IA Latin America sector (both comparator benchmarks)*.
After a very strong first half of the year, Latin American markets generated a small negative return during the third quarter of 2023, slightly behind the small positive return from emerging and developed markets but still comfortably ahead over the year to date. Dispersion across regional markets was high with Colombia leading the way helped by oil’s 27% gain, while Argentina declined by 11% and Chile fell 6%. External factors were a drag as sharply higher yields in the US led to a stronger dollar and some pressure on regional currencies, which started to raise questions over how quickly the interest rate cutting cycles could proceed. Chile and Brazil began cutting rates in July and August and have now cut by 175bps and 100bps, respectively, with Peru following suit in September.
Weakness in Argentina was explained by the results in the primaries ahead of October’s presidential election, where Javier Milei received nearly 30% of votes and is now firm favourite to become president, alongside continued deterioration in economic data. Uncertainty remains high given some of Milei’s proposals include dollarising the economy and eliminating the Central Bank but his likely minority representation in Congress will make policy implementation more difficult.
Mexico’s share of US imports continues to rise, now at 16% up from 14% at the beginning of the year and in stark contrast to China’s share which continues to fall, at 13% and down from 20% just two years ago. This is despite container freight rates having normalised following the pandemic spike and reflects Mexico’s structural competitive advantages in manufacturing – Mexico’s share of US imports has been rising for the past decade but this trend has accelerated with the added geopolitical tailwind.
Latin American equities are trading at 8x forward earnings, a more than 25% discount to the broader emerging markets and 30% discount to the ten-year history. Recession fears could weigh on regional and global equities through the months ahead but relative and absolute valuations are already at extreme levels suggesting significant risks are already priced in.
Discrete years' performance (%), to previous quarter-end:
|
|
Sep-23 |
Sep-22 |
Sep-21 |
Sep-20 |
Sep-19 |
|
Liontrust Latin America C Acc GBP |
1.6% |
8.2% |
19.6% |
-31.5% |
18.2% |
|
MSCI EM Latin America |
9.2% |
21.1% |
22.1% |
-32.7% |
12.9% |
|
IA Latin America |
7.7% |
12.7% |
16.5% |
-28.4% |
14.8% |
|
Quartile |
4 |
4 |
3 |
3 |
2 |
*Source: FE Analytics as at 30.09.23.
**Source: FE Analytics as at 30.09.23. Quartile rankings generated on 10.10.23
KEY RISKS
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
Investment in the Fund involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Fund may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. The Fund holds a concentrated portfolio of stocks, if the price of one of these stocks should move significantly, this may have a notable effect on the value of the portfolio.
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