Latin American Funds: Getting Hot Down There
08/24/04 - 11:59 AM EDT
Gregg Greenberg
In addition, higher oil prices are unlikely to hamper growth in Brazil as much as in other countries, such as the U.S., which are more reliant on foreign oil. Brazil is the third-largest oil producer in Latin America behind Mexico and Venezuela and possesses the second largest oil reserves in the region. Due to intensified oil exploration and development, particularly in the offshore Campos basin north of Rio de Janeiro, and falling domestic consumption, Brazilian oil imports actually have dropped substantially since the 1970s.
Brazil's state-owned oil company PetroBras(PBR Quote - Cramer on PBR - Stock Picks), of course, has benefited from the rise in oil prices; its shares are up 25% over the past three months. PetroBras' impact on the performance of Latin funds is also undeniable. The company has the third-largest allocation in the S&P Latin America 40 Index at 10.15%, behind Mexico's America Movil's (AMX Quote - Cramer on AMX - Stock Picks) 12.33% and Telefonos de Mexico's(TMX Quote - Cramer on TMX - Stock Picks) 10.44%. Analysts may give Lula a lot of credit for steadying Brazil's economy, but the unconventional president might want to send a note of thanks northward to Fed Chairman Alan Greenspan for keeping U.S. rate hike fears in check. Fears of a steep hike in interest rates swept through U.S. markets in April, driving the yield on the 10-year Treasury from below 4% to more than 4.75% by early May. The unrest in U.S. credit markets caused a selloff in emerging markets indices, as hedge fund and other institutional investors nervously unwound their carry trades, which meant selling off emerging market currencies, stocks and bonds. The S&P Latin America 40 index, for instance, sank more than 20% during the period. (The carry trade is when investors -- especially hedge funds -- borrow money at cheap short-term rates in order to find higher returns in longer-term vehicles elsewhere. A significant portion of that borrowed money flowed into higher-yielding emerging market bonds.)
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