Latin America: An easy way to profit from the commodity boom

• Latin America may be a strong growth story despite COVID.

• Commodity boom will be highly positive for the region.

• Make economy bets rather than company bets via ETFs.

Latin America may be a strong growth story despite COVID

Latin America has been hard hit by COVID and unlike other regions of the world, it has yet to get control over the pandemic. Brazil, Argentina, and Chile all continue to see cases rise by thousands and all have some of the highest death rates per capita of anywhere in the world. But while the public health emergency remains a terrible cost of stress to those societies and economies the region may soon see an unexpected boom in economic activity and investors are beginning to take notice.

The commodity boom will be highly positive for the region

The recent commodity boom caused by supply shocks and a surge of demand in both OECD nations and China could have a very positive impact on the region which is a key exporter of many needed commodity products. In recent months prices for everything from soybeans to corn to iron ore to copper have exploded rising by double digits. All of this bodes very well for the region which is a key supplier to the world.

With global economic activity returning to normal it may take more than a year for capacity to adjust. That suggests that high commodity prices will remain in place for the foreseeable future which should be very profitable for key businesses in the region and should repair both state and private sector balance sheets.

Make economy bets rather than company bets via ETFs

Instead of trying to pick specific winners or even specific sectors in a region rife with the political and idiosyncratic risk it may be much wiser for investors to make broad based bets on the economic revival of the continents three biggest economies – Brazil, Argentina and Chile.

To that end a simple basket investment into the AGT (Argentina) ECH (Chile) and EWZ ETFs could be an easy way to play the commodity boom trade.

All three ETFs are well off their post-pandemic lows as many investors have already positioned themselves for a possible rebound, but with countries still struggling to get COVID under control the full scale of the potential boom has not yet been priced into their respective stock indices. As vaccine makers ramp up global production and vaccination rates begin to climb, the region will be able to return to productive capacity by the end of this year. Meanwhile, the demand for commodities could be a multi-year trend that could push all the ETFs well past their pre-pandemic highs as the region enjoys a cyclical upturn. 

If the commodity boom continues for the foreseeable future, no region is more levered to the upside from his trend than Latin America and investors may be wise to allocate some capital to capture that growth.