Mark Mobius on Latin America

Do you think that Latin America is stronger today that it was two or three years ago? Yes/no and why?

I would say that, in general; the Latin American region is stronger, economically speaking, than at the beginning of this decade. The main reason to think in this way is how dramatically the region has reduced leverage. Three years ago, the region had DEBT/GDP ratios substantially above today's levels and this is evidently recognized in the sovereign spreads of the different Latin American countries, which have narrowed considerably. Nowadays it is discussed that Brazil, the largest economy in the region, might reach investment grade status within a 12 month period. This is a remarkable event. At the same time, the region has experienced growth with a reasonable level of inflation (with some exceptions). This is another significant highlight.

Are you still investing in the region? In which areas?

Yes. We are still invested in the region in a wide selection of countries and industries like telecommunications, energy, base materials producers, financial institutions and consumer focused companies. The largest amounts of investments are going into Brazil and Mexico followed by Chile and Argentina.

Would you invest in Chile again?

As a matter of fact, we do have investments in Chile right now and continue to invest.

Regarding Chile's economy, what is your opinion and projections? The Chilean economy is quite unusual, even for the so called developed countries, in the sense that it is running a significant fiscal surplus and has a comfortable current account surplus. The country has such a high level of savings that it is forcing the domestic investors to channel this savings overseas to prevent the domestic currency from gaining too much value versus the USD. Chileans are disappointed because they are not growing faster than 6%, which is a difficult thing to do after having grown at double digit rates consistently for a long period of time. But, eventually, the country will overcome its bottlenecks and realize its full potential soon. The social progress regarding income distribution that Chile has achieved is quite unique in the whole world. Overall, therefore, Chile is in a good position and can be shown as an excellent example of progress.

Chile's macroeconomics numbers are better than in the last years. Do you think these numbers show a trend of annual growth near 6%?

As I mentioned, the economy has started at a soft pace this year but the successive fiscal stimulus packages seem to be working. I am confident that the country will soon reach its full potential growth again.

Do you think Chile will be some day a developed market? Yes/No and why?

In many aspects Chile is already a developed economy, given its investment grade status. The country has done a remarkable job in reducing wealth-distribution inequality. Certainly, Chile will be a developed market sooner than most people expects. You have to look back thirty years in time where places like Hong Kong or Singapore were at that time and they are developed economies today.

Do you think the high price of copper and others metals will continue? How could Chile take advantage of this situation?

We are witnessing the incorporation of significant economies like China and India to the global economic mechanism. They will continue to need natural resources to keep up with the projected growth and investment. And you have to realize that the domestic demand in those countries is still in its infancy. When those countries start to consume at western-world standards, the demand for goods and services will be significantly larger that it is today. This situation bodes very favorable for producers of basic materials.

Chile is one of the largest producers of copper, but there are a number of other raw and produced materials in which Chile is doing very well. What Chile should do is to channel the gains of these privileged resources to diversify its economy with investments in other fields to be prepared for the time when commodity prices start the downward trend.

What risks do you see now in Latin America?

My concerns are more on the political side at the moment. A change in policies towards ideas that we though the world left behind many years ago are re-surfacing again vigorously in places like Venezuela and Bolivia and moderately in places like Ecuador or Argentina. I hope, authorities will realize their mistakes and go back to the right track to promote market based economies in their countries. Without market based economies the outlook for those countries is very bad

Are political changes in South America affecting the economies?

The global environment is so favorable that sometimes disguises the mistakes in political economy. But those mistakes are paid dearly when the favorable conditions are no longer there. Responsible governments should prepare during the times of plenty for the times of scarcity.