US agency brokerage Auerbach Grayson, a specialist in emerging markets research and trade execution services, has extended its network to enable institutional clients to take advantage of growing opportunities in Latin America’s smaller markets.
The firm, which executes in non-domestic markets through local broker partnerships, has added five new Latin American countries – Bolivia, Ecuador, Costa Rica, Panama and Paraguay – to bring its total coverage to 15. Auerbach Grayson plans to add more Latin American countries in 2009.
“When most investors think of Latin America they think of Brazil and Mexico and, since last year, also Peru and Colombia,” Melissa Winter, director of Latin American and Caribbean equity sales at Auerbach Grayson, told theTRADEnews.com. “In general, investors are surprised to learn that there are equity possibilities in Uruguay, Costa Rica and Trinidad and Tobago, for example. There are some very attractive companies which are not priced appropriately.”
According to Winter, several investment firms are building up portfolios of small cap or so-called frontier market funds. While some stocks in bigger Latin American countries have become cheap because of the global financial crisis, shares in the smaller countries have been more insulated because they have less foreign investment and so can provide an attractive diversification.
There has been a bit of a shift in focus,” she said. “There is a bit more interest in terms of deep value in Brazil, but there is still also very clear interest in these frontier markets because they are less correlated.”
Trade execution can prove a challenge in Latin America for a variety of reasons. Some countries require clients to open an account in the country to trade there, which can sometimes take around a month. Foreign exchange rates need to be closely monitored. And liquidity can be tough to find in some of the smaller markets.
But John Burge, director of emerging market sales at Auerbach Grayson, says it is generally possible to get trades executed successfully in most markets.
“Liquidity in some of these markets has gone down significantly. Right now, Brazil is the only market trading over $1 billion average daily volume, Mexico is trading a couple of hundred million, Chile might be $100 million and the rest below that,” he said. “Trading can be lumpy, so having a local partner who knows where a block can be sourced is why people like to come to us.”