Ecuador unrest has limited market impact in Latin America


Police demonstrations have sparked mass unrest in Ecuador and raised the odds of a broader government crackdown, but for now U.S. investors should not worry too much about exposure. Even though J.P. Morgan officially recognizes Banco de Guayaquil as an ADR under ticker symbol BGYQY, the stock actually does not trade even on an over-the-counter basis.

As a result, there really are no Ecuadorian ADRs. There are also no dedicated or regional ETFs with appreciable exposure to Ecuador. As a blue-chip fund with only 40 holdings, ILF  concentrates on the largest Latin American companies -- no company traded in Quito made the cut. And GML  is nominally broader, but still concentrates all of its assets (100%) in four countries: Brazil, Mexico, Chile and Peru.

(Both funds are in positive territory today.) When you move into Latin mutual funds, the situation gets a little murkier because traditional portfolio managers tend to only publish their holdings every three months. However, among the big players -- the Blackrock and Fidelity and DWS funds of the world -- there is no Ecuador equity exposure on the table for U.S. investors to worry about.

However, emerging debt funds have dabbled in Ecuadorian bonds, and these portfolios are at risk of compete default if the situation in Quito degenerates beyond the point where the government can meet its credit obligations. Funds with 2% to 3% exposure to Ecuador include Franklin Templeton's emerging markets debt opportunities FEMDX. Other emerging debt funds like Pimco's PEBLX are free from direct Ecuadorian exposure:

In terms of follow-on risk, Ecuador is a significant oil exporter to the United States, so any disruption in the country could hurt local producers and push up crude prices. So far, no disruption to state-owned facilities has been reported. Companies doing business in the country include Spain's YPF, which has invested heavily in the country and is down today:

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs , International

Referenced Stocks: FEMDX , GML , ILF , YPF

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