It has been an interesting year for Latin America equities,
but broadly speaking, one of 2011's worst-performing regions has
bounced back nicely in 2012. There is a simple, but true
cautionary tale and it is one that can be applied to almost any
region. Just because a particular region performs does not mean
all of the stocks there are should be considered "buys."
Latin America personifies that notion. Using the
country-specific
ETFs
available to U.S. investors that track Latin American nations, a
mixed bag is what is found. Down over 22 percent, the Global X
FTSE Argentina 20 ETF (NYSE:
ARGT
) has been a disaster. The iShares MSCI Brazil Index Fund (NYSE:
EWZ
) is down "just" 5.7 percent, but that is still enough to make
the worst-performing of the four major ETFs tracking the BRIC
nations.
Conversely, the iShares MSCI Mexico Investable Market Index
Fund (NYSE:
EWW
) and the Global X FTSE Colombia 20 ETF (NYSE:
GXG
) have impressed, even overshadowing a 17.1 percent gain for the
iShares MSCI All Peru Capped Index Fund (NYSE:
EPU
).
Some Latin American equities have delivered the goods in 2012
while some have not. With an ample amount of constituents in both
groups, investors looking to avoid (or short) LatAm dogs next
year need only look at this year's losers.
Telecom Argentina (NYSE:
TEO
)
A superficial analogy of Telecom Argentina would leave investors
thinking this the AT&T (NYSE:
T
) or Verizon (NYSE:
VZ
) of Argentina. That is basically what Telecom Argentina is, but
the sector similarity ends that comparison.
Telecom Argentina offers some high points. The company has no
long-term debt, a high return on equity and a dividend yield that
is well in excess of AT&T's or Verizon's. However, there is
no getting around the fact that this company operates in
Argentina
and that means a far higher degree of risk that
most investors are willing to take on with telecom stocks.
Current Argentina-related risks include a government that is
pro-nationalization and anti-free market, a looming sovereign
debt default (one that would be the country's second this
century) and the potential loss of frontier market status.
Petrobras (NYSE: )
A lot can be said about Petrobras, Brazil's state-run oil
company, and not much of its good. This might throw quantitative
analysis geeks for a loop, but the reasons to continue avoiding
Petrobras are easily spotted and do not require intense analysis.
Not only has the stock been the worst performer of the major,
U.S.-listed global integrated oil names over the past five years,
but the company's expenses continue to rise while production cuts
continue to pile up. The continuous reduction of output estimates
is vexing at best given that Brazil is home to some of the most
bountiful oil reserves in the world. Beyond all that, Petrobras
pays an anemic dividend that is paltry in comparison to rivals
ranging from Exxon Mobil (NYSE:
XOM
) to Royal Dutch Shell (NYSE: RDS-A) to Total (NYSE:
TOT
). In other words, investors are not compensated to deal with the
seemingly endless frustrations Petrobras has become infamous for
delivering.
If those are not good enough reasons for investors to shy away
from Petrobras, consider this: Noted short seller Jim Chanos
recently called Petrobras one of his favorite
shorts
.
Fortuna Silver Mines (NYSE:
FSM
)
After noting the impressive returns generated by the iShares MSCI
All Peru Capped Index in 2012, the appearance of a Peruvian stock
may come as a surprise to some. However, there is more to the
story. First, Fortuna Silver Mines is
not a member of the Peru ETF's lineup
.
Second, and perhaps more importantly, silver miners share
something in common with gold miners and that something is not a
positive. That being a penchant for underlying the futures price
of the metal they mine. In the case of Fortuna, the stock has
notched a double-digit loss in 2012 despite the fact that the
iShares Silver Trust (NYSE:
SLV
), which is backed by physical silver, has surged almost 19
percent.
Do not forget that Fortuna is a micro-cap name with a
long-term
debt-to-equity ratio of almost 4.1
. The latter of which is a fine reason to avoid this sub-$5
name.
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