BlackRock Latin American Investment Trust (BRLA) announced its annual results for the year ended 31 December 2023. The company’s NAV was up 37.8% in US Dollar terms, which compares to the benchmark returns with dividends reinvested of 32.7%. The share price rose by 35.3% in US Dollar terms (but increased by 27.6% in sterling terms).
The outperformance was driven by stock selection across a range of markets, most notably exposure to Mexico as the country has been and continues to be a key beneficiary from the shifting of global supply chains; and coupled with a prudential fiscal policy and a strong export sector, Mexico has replaced China as America’s largest trade partner. Stock selection in Brazil was also a contributing factor with the market pricing in interest rate cuts in 2024.
Regarding the market backdrop for the year, manager Sam Vecht commented:
“The MSCI EM Latin America Index gained +32.7% during 2023, significantly outperforming other Emerging Market (EM) regions. For reference, both the Asia-Pacific (APAC) and Europe, Middle East and Africa (EMEA) regions posted mid-single digit returns with the MSCI AC Asia Pacific ex Japan index up 4.6% while the MSCI Emerging Markets EMEA Index climbed 8.6% in 2023. The region also outperformed the MSCI USA Index, which was up 27.1%, and Developed Market equities, as represented by the MSCI World Index, up 24.4%. All performance figures are calculated in US Dollar terms with dividends reinvested.
“All markets the company’s investment universe generated positive returns in 2023. Argentina was the standout performer, returning 65.7%, making it the best performing market globally. The market surged after libertarian Javier Milei picked up a majority of the votes, and finished ahead of Sergio Massa, the incumbent Finance Minister, in the elections that concluded on 19 November 2023. Javier Milei’s unexpected victory instilled cautious optimism in the market about the country’s potential for economic reform and the possibility of central bank orthodoxy.
“In Brazil, Luiz Inacio Lula da Silva was sworn in as president on 1 January 2023. While the Brazilian market experienced some turmoil in the first half of the year, mainly due to concerns around fiscal prudency and lower activity resulting from elevated interest rates, the market bounced back in the latter half of the year, rising 32.7% in 2023. A large portion of the rally can be attributed to the much-awaited rate cuts, which finally began in August, when the central bank cut its policy rate by 50 basis points in response to falling inflation. The market continued to trend upwards in the latter half of the year, as the increased likelihood for rate cuts in the United States of America (US) should provide room for the central bank to ease more aggressively in 2024.
“Mexico was yet another market that performed well in 2023, rising 40.9%. The market has benefitted from a gradual fall in inflation and resulting interest rate cut expectations. Performance had been further buoyed by a stronger than expected US market. It is also worth pointing out that the country has been and continues to be, a relative beneficiary of increased geopolitical tensions, as countries such as the US are looking to diversify their supply chains away from China. In 2023, Mexico also overtook China to become the US’ largest trading partner.
“Political and social unrest has been the dominating picture of the Chilean and Peruvian markets throughout much of 2023, where both countries ended the year flat. In December, the Chilean population rejected the suggested changes to their constitution, for the second year in a row. This marks an end to the constitutional saga, for now, that has been ongoing since 2019. In Colombia, we note the improvement in the country’s external balance.”
Regarding the outlook chair Carolan Dobson commented;
“Following the board’s visit to Brazil in November 2023, it was encouraging to see the positive market sentiment for a range of the portfolio companies operating in Brazil. The Brazilian Government had embarked on some significant tax reforms which should allow businesses to operate more efficiently. The government’s continued prudent fiscal policy should enable the country’s central bank to decrease interest rates further which in turn should help stimulate the domestic economy.
“The geopolitical environment is currently changing with three blocks emerging, US aligned, China aligned and the non-aligned, who are benefiting from trading with both of the other blocks. The markets in the Latin American region have managed to remain somewhat removed from the global geopolitical conflicts and so far, have been able to benefit from significant opportunities for direct investment as governments and businesses globally re-think supply chain configuration and seek to diversify risk away from countries more prone to geopolitical fallouts. The region is rich in natural resources of crude oil and natural gas and is also a major source of copper and lithium which are critical materials for the green energy transition. Not only is Latin America rich in natural resources, it is also an agricultural powerhouse. The region accounts for close to 25% of global exports in agricultural and fisheries products, and its significance in the global food supply chain is anticipated to increase in the future. The Board is optimistic for the outlook for Latin American equities.”
BRLA : Impressive growth for BlackRock Latin American