Investors missing Pacific Alliance exposure

01-Mar-2016

By Sarah Kendell

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Australian investors were missing out on key long-term growth opportunities through a lack of exposure to other emerging Latin American markets outside of Brazil, namely the ‘Pacific Alliance’ of Colombia, Chile, Mexico and Peru, according to King Irving Funds Management.

Speaking at a media briefing in Sydney yesterday, King Irving managing director Kate Mulligan said while investors traditionally looked to Brazil for Latin American exposure within their emerging markets allocations, the Pacific Alliance nations were actually responsible for a larger proportion of economic growth in the region.

“The area produces more than 50 per cent of total Latin American GDP and is predicted to have double-digit annual economic growth in the long to medium term,” Mulligan said.

To solve the problem of the lack of exposure, King Irving had teamed with local Latin American manager Sura Asset Management to create the King Irving Sura Pacific Alliance Fund to offer Australian investors access to the market for the first time.

Sura director of product development and investment standards Felipe Trujillo said that beyond the growth opportunities the area offered, the four countries’ strong belief in democracy, transparency of governance and the rule of law also provided attractive stability for investors.

“The countries are sharing best practice in different economic sectors and have been putting a lot of work into improving the region as a trade opportunity,” Trujillo said.

“The technology and infrastructure used in the local share markets are also world leading – the chair of the Colombian stock exchange is also the head of the World Federation of Exchanges.”

In terms of sector mix, the region offered a good blend of commodities, industrials and manufacturing, which had been boosted by strong investment in infrastructure in recent years, although the managers were currently staying away from commodities in light of price volatility.

“At the moment we are focused on banks, consumer staples and healthcare, which play into the themes of an ageing population and rising middle class in the area, as well as increasing remittance of funds back to Mexico from those working in the United States,” Felipe Asenjo Wilkins, Sura’s regional head of equities and the fund’s portfolio manager, said.

“While Mexico initially lost a lot of its edge in the manufacturing sector to China, we are also seeing that starting to come back the other way – Mexico leads the world in television exports and a number of large automotive producers such as Audi are headquartering their manufacturing there.”

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