As everyone is now aware, Latin America suffered from the "tequila effect," as the December, 1994 economic crisis in Mexico rippled through Latin American markets. Even faraway Asian markets felt stock prices fall as fear, panic and mismanagement pervaded the marketplace.

Popular perception seems to be that Latin America is still somewhat embroiled in economic chaos. At the same time, BEA Associates global strategist Bill Sterling points to an obscure article he found, which indicates that several American airlines cannot book enough flights to get Canadian and American business people to Central and South America to do business!

BEA Associates manages Canadian International's "emerging markets" and Latin American mutual funds. One of my clients who works for Canadian Airlines has commented that Canadian Airlines is suffering from the same problem: too much demand and not enough supply for travel to Central and South America. So what's up?

Is it a good idea to have a portion of your investments in emerging market and Latin American mutual funds?

Bill Sterling reviews the facts, now that over a full year has passed since the "peso crisis" of December, 1994:

1. No major Latin American country has defaulted on debt payments.
2. The governments of Mexico, Brazil, Argentina and other countries continue to escalate programs to privatize formerly government-held corporations.
3. These countries continue to enjoy an inflow of foreign capital into their stock markets.
4. After the "peso crisis," one of the top five stock markets in the world in 1995 was Mexico (once again contrary to popular perception).
5. The North American Free Trade Agreement is working and profitability is expanding. Canada is looking at a trade agreement with Chile prior to Chile joining NAFTA.
6. Upon examining emerging market and Latin American mutual fund choices (of which there are now 42!) for the 3 months ending February 29, 1996, we find they are starting to rise significantly and funds are up an average of 12.2% and some much more than that.

Mr. Sterling points out that Latin American stocks continue to be undervalued and are still available at relatively bargain prices (due to the publicly-held misconceptions). This will not last long.

Across the world in Asia, projected economic growth is 7% to 9% per year, versus 2% to 3% in more developed economies. These growth rates offer more value to consumers of investments such as Asian and Latin American stock market funds.

The risk of a U.S. stock market correction seems increasingly likely. Should this occur, money should flow out of North American stock markets to Central American, South American, and Asian stock markets, resulting in further appreciation of mutual fund unit values.

Expect continued volatility, but to quote the great Canadian hockey player, Wayne Gretzky, "Skate to where the puck is going to be, not to where it is." This has never been more true than now when applied to the emerging markets choices offered to Canadians. Unfortunately, Canadians continue to choose funds due to habit rather than performance. Ironically, excluding money market funds, just three of the top 89 funds (Source: Top Funds 1996, Duff Young and Riley Moynes) were bank funds, yet banks received more than 50% of the RRSP investments this season (see Planner's Corner).

Examine the risks and rewards of purchasing emerging markets mutual funds. Take advantage of our computer technology to determine the merits of your investment choices.

Consider rebalancing your investment portfolio. We offer you our complimentary advice as to what, if any, restructuring may be warranted. We would be happy to show you the mutual funds in which we are investing our own money.