) came to market with an equity sale this month on the partial
sale of its Latin American subsidiary
Cemex Latam Holdings
. The offer was said to be three-times oversubscribed and the
markets were optimistic given the performance of emerging markets
over the last few years.
While the company raised $1.14 million from the sale,
investors in the shares were not so lucky in Friday's first day
of trading. Shares listed on the Colombian exchange dropped 2.7%
against a loss of almost a half a percent in the general
The case reflects the need for quality analysis of the region
and investment opportunities. While the economic outlook for
Latin America is generally better than the developed world, there
will still be winners and losers in assets. Of the six major
markets, only the iShares MSCI Brazil (
) and the iShares MSCI Peru (
) have outperformed the S&P 500 over the last six months.
Indexes for Colombia, Mexico, Argentina and Chile have all
underperformed by between 5% and 10%.
I looked at the record lows in debt yields last week in an
warning investors to chase bonds only so far
. While emerging sovereign debt pays an incremental yield over
domestic debt and treasuries, they could also fall more rapidly
in the event of another credit crisis. The PowerShares Emerging
Market Sovereign (
) dropped 40% from September to October 2008 compared to a
decline of 24% in the iShares High Yield Corporate (
If the record low interest rates come back to haunt bond
investors, they should still provide a benefit to equity
investors in the region. As long as revenue does not fall
dramatically, companies could see higher net earnings due to
lower interest costs.
It is still uncertain whether Europe is working its way out of
its debt crisis and growth in the U.S. looks to be 1.5% or weaker
for the next two quarters. A further loss in market sentiment
will hit the higher-beta emerging markets harder and investors
need to be ready for the ride.
Look for relative safety in EM domestic consumer stocks as
well as the companies deemed strategic to the state. While
companies like Petrobras (
) may not outperform over the longer-term due to its place as the
government's unofficial piggy-bank, the implicit backing of the
state should make it less volatile than smaller companies.