The recent IPO of Nu Holdings has been in the limelight for all the right reasons. Backed by Warren Buffett, Nu is the largest digital bank in the Latin American region and one of the fastest-growing businesses. With a valuation of over $45 billion and close to 50 million customers, Nu is a shining example for businesses from the region.
Nu is not the first of the companies from this region to make waves. In the eCommerce space, MercadoLibre has already grown to become one of the largest players from the Latin American region.
While GDP growth rates are not as high as some of the Asian economies, the LATAM region still has some of the youngest populations and potential for sustained growth. By 2021, Argentina, and Brazil are expected to have grown over 5% each, while Chile, Colombia, and Peru are expected to have clocked over 10% growth.
The LATAM area is spread across a vast geographical also blessed with abundant natural resources. These resources were what drew the early Europeans to conquer this region. While North America had mostly English and French settlers, Central and South America saw Spanish and Portuguese ruling them, a result of which, these two languages are widely spoken in the region.
Let’s look at some of the countries of the region:
Brazil is the largest country in the region. It is also the fifth largest country in the world. Brazil is one of the largest producers of iron ore in the world. The country also produces copper, gold, aluminum, and manganese. Brazil has abundant forest land and is a major producer of coffee, cocoa, sugar, and soybean. Some of the major companies domiciled in Brazil are Vale, the iron ore producer, Petrobras, the petroleum major, Itau Unibanco, the largest bank in the LATAM region, Azul, the airline, and Embraer, the aircraft manufacturer.
Mexico is an important country in the LATAM region due to its border with the US. Due to its proximity to the US, Mexico is an important manufacturing hub for many industries including automobiles and industrial equipment. Some of the major Mexican companies are Cemex, the cement and building products company, America Movil, the Telecom firm, and the three airport stocks. The beaches of Mexico are a key tourist spot for American travelers, and the airport companies generate a lot of business from this crowd. The companies are Grupo Aeroportuario del Pacifico, Grupo Aeroportuario del Sureste, and Grupo Aeroportuario-OMA.
Argentina is the largest country in the LATAM region after Brazil and is an important producer of agricultural commodities and beef. Economically, Argentina has been in and out of recessions constantly and has the dubious distinction of defaulting on its sovereign debt multiple times. Nonetheless, the country is home to some well-run companies such as banco Macro, the bank, and Mercadolibre, the eCommerce giant, and Arcos Dorados, the largest McDonalds franchisee in Latin America and the Caribbean.
Peru is a mountainous country and is home to a vast stretch of rainforest. Peru also has abundant natural resources and boasts of some of the largest copper, silver, and zinc mines in the world/ Southern Copper, the mining company has a large portion of its mines in Peru. Credicorp is the largest financial company in that country.
Chile, in the southernmost part of South America, is also a mostly mining-driven economy. Chile boasts a niche tourism industry as well, due to its relative proximity to Antarctica. Chile is also famous for being one of the high-income economies in the region and produces excellent wine. The country’s economic policies were largely influenced by a set of economists from the University of Chicago. Some of the largest Chilean companies include Banco de Chile, the bank, Enel Chile, the electricity utility company, and Soc. Quimica y Minera de Chile, one of the largest producers of fertilizers and lithium.
Other countries in the region include Colombia, Panama, with companies such as Bancolombia, and Banco Latinoamericano de Exportaciones y Importaciones, S.A (BLADEX), respectively.
Banking and financial services are a primary requirement for any major economy. The LATAM region is home to many such companies. Most of them have businesses spanning multiple countries within the region. The most important ones include:
Itau Unibanco (ITUB), headquartered in Brazil, is the largest bank in the region. This bank holding company has operations in Brazil, Argentina, Colombia, Panama, Paraguay, and the US. The bank has commercial and retail banking, investment banking, and credit card businesses.
Credicorp (BAP), based in Peru is the largest banking organization in that country with operations in other countries including Bolivia and the US. Credicorp is engaged in retail banking, micro-finance, investment management, and insurance.
Banco Macro (BMA) is one of the largest private banks in Argentina and provides retail banking, SME loans, brokerage, and asset management services.
Metals and Mining play a key role in many LATAM economies. With vast natural resources, several countries in this region are major exporters of both minerals and finished products like steel. Both Mexico and Brazil are also large oil and gas producers.
Source: Morningstar
Vale (VALE), based in Brazil is one of the largest producers of iron ore and steel in the world. It is expected to produce 315-335 million tonnes of iron ore in 2021 alone.
One of the largest copper producers in the world Southern Copper (SCCO) is headquartered in Mexico but has mines all over the LATAM region. It is majority-owned by the Grupo Mexico conglomerate of Mexico but trades actively in the US exchanges.
Sociedad Quimica y Minera De Chile S.A. (SQM) is one of the largest producers of fertilizers in the world. However, Lithium mining is the more important business of SQM. With the growing demand for Lithium in EV batteries, the company has become a key player in the EV supply chain.
Source: Morningstar
Consumer discretionary businesses are also a vital cog in the LATAM economies. Some of the prominent businesses in this area include:
Mercadolibre (MELI), is the largest eCommerce player in the region, with operations in Argentina, Brazil, Chile, Colombia, Mexico, Guatemala, Ecuador, among others. The firm approximately 132.5 million unique active users in 2020.
Arcos Dorados Holdings (ARCO) is a franchisee of Mcdonald's restaurants and is in fact the largest franchisee in the world by a number of locations. It operates in 20 countries and generated over $3 billion in revenues in 2020.
Grupo Aeroportuario del Pacífico (PAC) is one of the largest airport management companies in Mexico and operates twelve airports in Mexico and two in Jamaica. Its key airports in Mexico include the beach areas of Los Cabas and Manzanillo.
Source: Morningstar
Other key businesses that are unique to the region are:
Embraer (ERJ), the largest manufacturer of civil airplanes outside of the majors Boeing and Airbus.
Bladex (BLX) is a special financial services company. Based in Panama, it finances Latin American and Caribbean foreign trade.
Cemex (CX) is the fifth-largest building products manufacturer in the world and has operations in over 50 countries. Based in Mexico, the firm generated over $13 billion in revenues in 2020.
Source: Morningstar
Investment options:
Investing directly in several Latin American ADRs is a straightforward way of getting exposure to the region. A variety of ETF choices are available including the broad iShares Latin America 40 ETF (ILF) and country-specific ETFs such as iShares MSCI Brazil ETF (EWZ), iShares MSCI Mexico ETF (EWW), and Global X MSCI Argentina ETF (ARGT).
Source: Morningstar
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