Fifty years after Yugoslavian President Josip Tito founded the
Non-Aligned Movement, the economies of the association's roughly
120 nations have grown in excess of 5% per year on average, while
larger developed economies in North America, Europe and Japan have
slowed to a crawl. Yet, it's easy to forget theinvesting potential
of theseemerging markets , spread throughout Asia, Africa and Latin
When investors have sought to gain exposure to less developed
economies, they've largely focused on Brazil, Russia, India and
China, mostly ignoring the dynamic growth that has been taking
place beyond the "global top 20." But you need not venture halfway
around the world toprofit from the robust growth among the
non-aligned nations. Instead, just look south of the border.
In Mexico, for example, theeconomy grew roughly 5% in 2010 and
4% in 2011, which was twice as fast as the U.S. economy -- its top
trading partner. As a result, the Mexicanstock market has been on a
tear, as this five-year chart of theiShares MSCI Mexico
InvestableMarket Index shows.
A region-wide phenomenon
One trait is fueling growth in Mexico and all across Latin America:
rising middle classes. As citizens earn more, they begin to spend
more in restaurants, at department stores, on travel and on
entertainment. And that spruces up demand for a range of new
businesses that cater to consumer appetites. Glance atGDP per
capita, which is the size of a respective economy divided by its
These economies may not seem impressive when it comes to
absolute GDP per capita (for the sake of comparison, U.S. GDP per
capita is $47,000), but it's the incremental changes that are
notable. With each passing year, there is another $500 or $1,000 to
spend on leisure, education and other pursuits. The fact that these
economies have been steadily expanding while their larger trading
partners in North America and Europe and have been weak makes this
all the more impressive. When the United States and European
economies finally start to grow again, Latin American growth rates
may rise even higher as international trade expands.
The Big Three (besides Argentina)
Although Argentina has the most robust economy in South America (on
a GDP per capita basis), it's not a fertile area for investors.
That's because the Argentinean government has repeatedly
antagonized theinvestment community with sudden decrees regarding
nationalization of key industries (such as energy producer YPF) or
onerous tax rates on exporters. That's why it's wisest to focus on
three other dynamic Latin American economies that have more
investor-friendly business policies.
Back in 2011, I tooknote of the robust growth in Brazil,
explaining that it is likely to host the fourth-biggest economy in
the world by 2035. That view still holds, and the
Market Vectors Brazil Small-CapETF (
remains one of the best ways to play Brazil's market.
Yet investors shouldn't overlook Chile and Colombia. Each
country can boast of rising middle classes, though Chile is farther
along on the path of economic development, as measured by GDP per
capita statistics. Chile's economy is home to the region's most
sophisticated banking system, has thriving tourism and agriculture
sectors and is one of the world's top producers of metals such as
copper and iron ore.
Even as Chile's economy has advanced over the past three years,
Chileanstocks have moved sideways, lagging U.S. stocks in the
process. Blame it on the outsized impact ofcommodity prices, which
have been range-bound in recentquarters (which means the
commodities are neither trending up nor trending down). Still, the
iShares MSCI Chile Investable Market Index ETF (
holds great appeal for investors looking to capture the growth of
Latin American economies.
The prospects for the Colombian economy are even brighter. That
country has emerged from a long and brutal drug war that took a
terrible toll on the economy as middle-class citizens fled to the
United States or elsewhere to escape the violence. You can see the
economy already coming back to life: It grew 5.9% in 2011,
according to the CIA World Factbook, and likely grew around 5% in
2012. Major cities such as Bogota and Medellin are humming with the
construction of corporate skyscrapers, and exports of oil, coffee,
natural gas and other commodities are steadily rising.
Global X FTSE Colombia 20 ETF (
has become a favorite investment platform for U.S. investors
seeking exposure to Colombia. According to Morningstar.com,
thisfund has generated a score of five (out of five) in terms of
returns, yet carries a very low risk rating compared to its
Action to Take -->
Latin American stocks surelywill stumble anew. That's the nature of
emerging market economies. Yet all of the key ingredients are in
place for solid long-term growth. If you invest in these countries,
view them as long-term holdings -- they are likely to post wild
price swings from quarter to quarter.
This article originally appeared on InvestingAnswers.com:
These Emerging Hot
Spots for Global Investing Are Closer Than You Think
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