According to the World Bank Group's 'World Economic Outlook: Latin America and the Caribbean' report, the region's economy contracted by 6.9% in 2020, as companies and households took a risk-averse position and measures to control the spread of COVID-19.
Despite the difficult economic and health outlook generated by the pandemic, projections for 2021 are optimistic. The World Bank Group indicated that, in a positive scenario, economic activity in Latin America will grow by 3.7% while “measures to mitigate the pandemic are more flexible, more vaccines are distributed, prices of the main basic products stabilize and the external condition improves.”
James Loveday, Head of Asset Management at Credicorp Capital, points out that the market did not thoroughly analyze how a failed vaccination process would affect the economy because of the mutation of the virus. In fact, if the distribution of vaccines is delayed, the growth could be as low as 1.9%, according to the World Bank Group estimates.
Americans interested in investing in Latin America should carefully study the situation of each country. In Brazil, increasing people's confidence is expected to promote an uptick in consumption and private sector investment. In Mexico, projections indicate that the economy will recover and that its exports will improve as the U.S. economy rebounds. In other territories like Colombia, it is estimated that several factors, including domestic demand, will allow economic growth for this year to increase to approximately 4.9%.
It is important to note that profit growth in Latin America is expected to be much higher than in other emerging and developed countries, according to Credicorp Capital Asset Management. In fact, projections indicate that Peru's earnings-per-share growth will be 256%, followed by Brazil (174%), Colombia (121%), Mexico (77%) and Chile (62%); much higher growth than India (41%), the United States (20%) and China (19%).
Despite the current situation, Latin America is an interesting market for U.S. investors. In connection with this, Loveday invites us to prioritize and promote sustainable investments: "They should be a philosophy. It should not be understood as an asset placement decision, but as a central part of the investment process. The industry has to support these decisions that over the past five years have gained relevance in Latin America."
Credicorp Capital is part of Credicorp Ltd., the leading and largest financial holding company in Peru listed on the New York Stock Exchange (NYSE: BAP) and has a market capitalization of USD 20.12 billion*. Credicorp Capital is one of the subsidiaries of the holding Credicorp Ltd. It is also a holding company dedicated to providing financial services that arose from the consolidation of three leading Latin American corporations in Colombia, Chile and Peru. Today, it has a presence in 5 countries and USD 37.8 billion ** of Assets Under Advisory/Management.
* Source: Credicorp / Information at the end of 2019, considering an exchange rate of USD 3.34
** Source: Credicorp Capital / Information at the end of 2020 (includes assets under custody managed by the Wealth Management team)