January 2018: Latin America the emerging region for trade and Investments?

According to the recent reports, Chinese Vow to ‘Promote Globalization’ in Latin America. China will invest $2 trillion abroad in the next 15 years, and will soon seek a spike in “high-quality goods” from Latin America.

China overtook the US to become the largest export destination for Latin American countries like Brazil, Chile and Peru, and replaced the European Union (EU) as the second largest trade partner of the region in 2017. With a target of US$500 billion in trade and US$250 billion investment in the region by 2025, China is working to establish itself as the dominant economic power in the region.

Massive infrastructure projects in the region have been announced by China, such as the Bi-Oceanic Railway between the ports of Santos in Brazil and Callao in Peru, and the Canal project in Nicaragua. Indeed, China is setting the bar high for other powers to measure up to.

At the same time, Latin America continues to be a major market opportunity for the U.S. with its exports to the region valued at over $300 billion per year. High market growth opportunities continue to emerge in many industrial sectors throughout Latin America.

Over the past several years, Latin American governments have taken advantage of a very favourable global environment, and have been able to respond to domestic and international economic fluctuations.

Where does India stand?

India’s trade with Latin America is only US 30 Billion, which is low in comparison to China and the US; however, under Prime Minister Narendra Modi, its increasing self-confidence is resulting in continuous growing trade.

In 2017, Indian firms have increased their investment in Mexico and Brazil especially in auto parts, IT and agrochemicals. It is interesting that UPL, the largest Indian agrochemical company has more revenue in Latin America than in India. This is an opportune time for India to take the win-win economic partnership with Latin America to the next level.

The appointment of Mr. Suresh Prabhu as Commerce Minister of India is welcome news for economic relations with Latin America. He has been taking interest in the region with his deep knowledge and understanding.

“If you are seeking returns, go LatAm,” according to Javier Montero, a fund manager with Moneda Asset Management SA. Moneda, with $6.5 billion under management deployed in debt and equity from Mexico to Argentina, is bullish on the region over the next three years. The reason is a general political shift to a “more market-friendly approach” seen in Argentina, Peru, Brazil and Uruguay, and in Chile, according to Montero.

Out of the three emerging-market zones, LatAm has beat and will continue beating Asia and EMEA because of this, Montero sees an opportunity in the historic levels of depreciation Latin American currencies suffered since May 2013, with the tender of Chile, Brazil, Mexico, Colombia and Venezuela dropping between 26 percent and 38 percent, while Argentina’s peso tumbled 66 percent.

“In the last three years, investing in local markets didn’t work because the currencies depreciated, eroding the profits in dollar terms, but now, without depreciation, you get the whole yield. There are three big opportunities in LatAm currently: there is value in high yield, there is value in local markets in local currencies and there’s value in Argentina.

Indian Automaker, Hero Moto Corp., has set its sights on Brazil and Mexico, two big motorcycle markets where the Indian company’s biggest rival will be its former partner, Honda Motor. Hero is developing flexi-fuel engines for Brazil — the country uses ethanol blended petrol — with an aim to enter that market by March 2019. Brazil is Latin America’s largest market, and the fourth-largest globally, for two-wheelers with annual volumes of around two-million units, while Mexico sells more than half-a-million units a year. These are two key markets for Hero’s global ambitions since it parted ways with former joint venture partner Honda more than six years ago. Hero, the world’s top two-wheeler maker by volume, targets to be present in 50 countries by 2020.

India’s Sterlite Group, has won a contract to build 1,800km of power lines in northern Brazil, beating out international competitors to make what it claims would be the largest investment in Latin America by an Indian company. Combined with two other power transmission projects Sterlite won this spring, the new work will bring its investment in Brazil to $1 billion, the company said in a press release. It sees the project creating more than 5,500 jobs.