BlackRock’s Landers: Why LatAm equities can rally like 2009

Will Landers, manager of the $7bn BGF Latin American fund and $500m BlackRock Latin American investment trust, has said equities in the region are poised for a strong rally if the eurozone crisis is resolved.

Landers expects the region will continue to be sold-off until the threat of a banking crisis in the eurozone has been averted.

The MSCI Latin American index has been one of the worst performers this year, Landers admitted, with the index falling 16.7% since the start of 2011 compared to a 5.8% drop for the MSCI World, according to Morningstar.

“Latin American equities have been beaten up this year and have performed as badly as the Spanish, Italian and Greek markets despite the area not having any of the liquidity or banking issues the European market has endured,” said Landers.

“The space is still viewed as a risky area to invest and with the majority of investors defensively positioned with a bearish view on the world economy, equities have suffered. The cyclical areas and banks have been the steepest fallers.”

However, he added the falls mirror how the LatAm market reacted in 2008 before its bull run in 2009, and he expects a similar scenario this time around.

“For LatAm equities to get a much needed boost the risks of a European banking crisis need to subside. Once the danger is averted I believe the area will outperform Europe and the US like it did in 2009, because growth is going to be subdued for a number of years in the developed world,” said Landers.

“If you take Brazil, which amounts to 72% of the investment trust, the market is trading on a 4% dividend yield but the equity market has just not caught up yet.”

Despite headwinds for the global banking sector, Landers has been boosting exposure to LatAm banks, which are his biggest bet in the investment trust with a 7.5% overweight to the index.

He admits the position is losing him money in the short term but he expects to profit over a longer term investment horizon.

“Now is not the time to be defensive and I have been shifting money into Brazilian banks because the country’s mortgage penetration is still very premature.

“Around 5.5% of Brazilian GDP amounts to mortgages, which is up from 3% last year, so it is an area which is growing rapidly but is nowhere near bubble territory.”