It's springtime south of the equator, which means it is about to get hotter. So, too, could Latin American stocks. "I can't blame anyone for taking profits after this tremendous run," says Will Landers, portfolio manager for the $680 million ( MDLTX) BlackRock Latin America fund, in a
recent Street.com TV interview. "But the fundamentals for further growth are still intact." Landers' fund has surely been sizzling, rallying on the heels of the emerging market commodity boom. It's up 49% year-to-date and has returned an average of 60% annually over the past three years. And Landers is confident that the good times will continue -- especially in Brazil, where he has allocated two-thirds of his holdings. Most notably, the fund's investment in mega-miner Companhia Vale do Rio Doce ( RIO) comprises 15% of its assets. "CVRD is diversified, but its major business is still iron ore," says Landers. "There is little doubt that iron ore prices are going up significantly next year and three producers dominate that market: CVRD, BHP Billiton ( BHP) and Rio Tinto ( RTP)." Shares of Brazilian oil giant Petrobras ( PBR) are up 60% this year. Petrobras is currently slightly less than 10% of the fund, and despite its mammoth run, Landers says it remains the most attractively priced emerging market oil stock. "Petrobras will benefit when Brazil's debt rating is raised to investment grade and the country risk premium goes down," says Landers. "The fixed income markets are already hinting that an upgrade is in the works."
He also expects several E&P projects as well as large findings to be announced in the next 12 months. Away from Brazil, Landers maintains a large weighting in Mexican wireless provider America Movil ( AMX). "The company maintains strong margins in Mexico and holds 70% of the market," says Landers. "But they also have growing operations in South and Central America. They are the No. 2 provider in Brazil, where they are now growing profitably. Not just growing." Perhaps one reason for the blistering performance of Latin American stocks is political stability in the major economies. Political turmoil has long been a fear of foreign investors, but according to Landers, the foreseeable future looks placid. "There is very little political impact on Latin American markets right now," says Landers. "The last election cycle is over with Lula in office in Brazil through 2012 and Calderon will be running Mexico through 2014." The only notable election on the horizon is in Argentina, where analysts expect Cristina Kirchner, wife of current Argentine President Nestor Kirchner, to win easily. Landers holds a minor position in one Argentine-related stock in his fund, pipe-maker Tenaris ( TS). As for the summer selloff in the Latin stocks, Landers says they rebounded quite well once it was determined the problem was a U.S. credit issue, not another domestic credit or currency crisis. "Latin American nations still need to reform their labor and tax policies to grow their economies faster than 3% to 4% without spurring inflation," says Landers. "However, they have come a long way in a short time. And they still have a ways to go."