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Latin American Stock Markets More Attractive Risk Reward Opportunity Than U.S. Stocks

Stocks markets in Latin America are in great shape. In fact, they have very recently broken out, in June / July of this year. Let us deep-dive into Latin American stock markets based on the ILF price chart which is an ETF that represents 40 large stocks in 4 Latin American countries Brazil, Mexico, Peru and Chile.

Before looking into the details we would like to note that Latin American markets are a specific segment with emerging markets. Readers know meantime that we are very bullish on emerging markets (detailed these articles: Emerging Markets Break Out Into New Secular Bull Market, 5 Emerging Markets To Buy In 2017 And 2018, Emerging Markets Will Be Strongly Bullish In 2018). The beauty of looking into smaller segments (in this case Latin America as a small part of emerging markets) is that the likelihood increases of hitting an even stronger bull market.

Latin American markets clearly dipped in the first months of 2016. Since then they have largely outperformed most other markets globally.

The ILF ETF makes that point. It dipped at 18 points in February last year, and trades at 33.87 today (at the close of markets on August 18th 2017), an increase of 88 percent.

Logically, the first question to ask is whether it is too late to buy. We believe there are three answers to that question, and three times they suggest it is not too late but investors have to be selective:

  1. It is not too late given the chart setup we see. On the one hand Latin American markets broke out from a longer term bear market because of the break above the purple trendline. However, the ultimate confirmation comes when breaking above the dotted line which is 8.5 percent from current levels.
  2. The upside potential until all-time highs is significant. Even at the ultimate breakout point of 36 points there is still 30 percent upside potential until ILF will find heavy resistance at all-time highs.
  3. The trick is always to break down a bull market into its individual elements, which, in this case, means finding individual stocks which have the best setup, both fundamentally and technically.

We believe, after reviewing the charts and the companies in the ILF ETF, that 5 individual names are worth appearing on your shortlist. The 5 names are: brewing company Ambev SA in Brazil (symbol ABEV), wireless communication provider America Movil in Mexico (symbol AMX), financial insitution Credicorp in Chile (symbol BAP), regional bank Banco Bradesco in Brazil (symbol BBD), utility provider Enel Americas in Chile (symbol ENIA).

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