Merrill's Landers Likes Latin Stocks

Is a weakening currency the only risk facing Mexican stocks?

Other than U.S. growth, there are few catalysts for the Mexican economy. High oil prices will mostly help government accounts. From a corporate standpoint, we are very stock specific in the stories we like. We like Mexican homebuilders like Homex(HXM Quote - Cramer on HXM - Stock Picks). We also like America Movil (AMX Quote - Cramer on AMX - Stock Picks) as not only the No. 1 wireless company in Mexico but the largest in the region.

Speaking of homebuilders, Mexican cement giant Cemex(CX Quote - Cramer on CX - Stock Picks) reported flat earnings recently. Is there a link between Mexican homebuilding stocks and U.S. homebuilders?

Not really. Mexican homebuilding is more geared toward low-income housing, which is primarily funded by government accounts. Cemex has just gotten too big after a recent acquisition. It needs to digest that acquisition for a few quarters before we see growth.

Let's move on to Brazil, which to a large extent means Petrobras (PBR Quote - Cramer on PBR - Stock Picks) since it makes up a large part of the Brazilian stock exchange. How are higher oil prices affecting the Brazilian economy?

People forget that Brazil is a net importer of oil since the crude they produce is heavy and the oil that they use is light. But they are getting close to self-sufficiency, which is a long way from where they were 20 years ago, when they were importing most of their oil.

Commodities are very important, but they only make up about 30% of Brazil's exports. Brazil has become a much more diversified economy over the last several years. Nevertheless, higher commodity prices are absolutely benefiting the country, and oil and metals prices are expected to remain high throughout this year -- which, by the way, will help the currency as well.

So what is the big risk for Brazil?

The main risk for Brazil is that the unwinding of the carry trade will take a lot of money out of Brazil and force the government to move interest rates higher for much longer than expected. As I said, it is not too great a risk, but it is a significant risk.

There is a big focus on domestic growth in Brazil, and we especially saw it late last year. If rates don't start to come down by the third quarter of this year, there will be some serious questions as to whether they can meet their GDP growth forecasts, which are at 3.5% to 4%.

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