| BUSINESSWEEK ONLINE : JUNE 26, 2000 ISSUE | ||||||||
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| COVER STORY
Some Great Deals South of the Border Stocks are off, but Mexico and Brazil look healthy If you want a guide to Latin American equity markets these days, try New York. Latin bolsas fell in lockstep with the Nasdaq, dropping 30% in April and May. While the Latin American markets have recovered somewhat since then, investors can expect more volatility until there's greater certainty about where the U.S. economy and monetary policy are headed--and at what speed. But what all the the jitters have obscured is that the region's two biggest economies, Brazil and Mexico, are going strong and some of their smaller neighbors are coming out of their slumps. Geoffrey Dennis, Latin America strategist for Salomon Smith Barney in New York, expects regional growth to hit 3.8% this year and 4.1% in 2001, with inflation falling at the same time. Even better, stock prices are right. ''Valuations in Latin America are clearly very cheap,'' says Dennis, who estimates that the region's stocks are trading at an average of 12.5 times estimated 2000 earnings. Wall Street expects that Mexico's economy will grow by more than 5% this year, and that's allowing for any instability that may follow the July 2 Presidential elections. The main risk in Mexico is that a sharp U.S. slowdown would slash demand for exports--more than 80% of which go north of the Rio Grande. But for now, domestic demand is soaring, and consumer stocks are looking good. STRONG EXPORTS. Shares of Mexico's two media companies, Televisa and TV Azteca, which should benefit from higher ad spending, look attractive to Carlos Asilis, Latin strategist at J.P. Morgan & Co. in New York. He also likes Wal-Mart de Mexico; its first-quarter sales rose 11.2% compared with the same period in 1999. WalMex's stock price is climbing along with the market, but at about $20 a share, it is still down some 25% from its first-quarter high. Another favorite: Fomento Economico Mexicano, or FEMSA, a brewer and bottler that analysts say is undervalued. Its American depositary receipts trade close to $39 each, 25% off its first-quarter highs. Other analysts prefer Brazil's market because there's no major political risk and it's cheaper, trading at seven times 2001 earnings vs. 10.8 in Mexico. Ed Cabrera, chief Latin America strategist for Merrill Lynch & Co. in New York, expects corporate earnings to rise 40% this year and 30% in 2001. Growth could hit 3.5% this year as industrial output expands 6% to feed increasing exports, he says. ''We think the next two years will be the best we've seen in Brazil.'' Cabrera likes Banco Bradesco, which has an aggressive Internet strategy. The bank also is poised to benefit from an expected drop in high real interest rates, which can spur consumer lending. He also recommends long-distance carrier Embratel. ''It really is the Internet backbone in Brazil, and it's one of the cheapest major telcos in the world.'' Embratel, whose ADRs are trading at $23 each, has a p-e ratio of 16 times 2000 earnings vs. more than 50 for some global telecoms. Argentina could grow more than 3.5% this year after shrinking 3% in 1999. But because its peso is pegged to the greenback, its interest rates must match any U.S. rate hike. Analysts generally like Telecom Argentina, a local blue chip that is fairly cheap for a telco at 16 times this year's earnings. Still, with Mexico and Brazil powering along, there's little need to look much further for deals in Latin America. As long as the U.S. economy glides to a soft landing, that is. By ELISABETH MALKIN _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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