Each month, the Forbes International Investment Report includes a Q&A feature with a fund manager or analyst which editor John Christy has chosen for "exceptional insight into global markets and investing."
His latest interview is with Gonzalo Pangaro at T. Rowe Price. Based in London, Pangaro, with 15 years of experience in Latin America, manages $6 billion in Latin American equities, including the T.Rowe Price Latin America Fund (PRLAX). Here are some highlights.
Forbes/Christy: Latin American stocks are having a great year so far. Is it too late to get on board?
Pangaro: "I don't think so. There are still very attractive opportunities in Latin America.The performance has been extremely strong in the past three years, but before then, Latin America traded sideways for 10 years. So we are coming from a very low base, and the macroeconomic improvement in many countries has been significant.
"Back in 1994, at the time of the 'Tequila Crisis', countries had exchange rates that were fixed at artificially high levels, big current account deficits, poor fiscal positions, and very high dollar-denominated external debt. So they were very vulnerable.
"All of that has changed. All the key countries have paid down their dollar debt, inflation is under control, currencies are floating freely, and current accounts are in surplus. So I think the economic situation has improved meaningfully.
Forbes/Christy: What about the political scene? The situation in Venezuela doesn't look great on that front.
Pangaro: "Populism has clearly been on the rise in Venezuela and also in Bolivia, but I think they are more exceptions than the rule. I don't think those experiences will end happily, and hopefully that will be an example to other countries in the region. Other countries-Chile, Colombia, Mexico and Brazil-have been passing reforms for many years and doing the right things.
Forbes/Christy: Describe your investment philosophy.
Pangaro: "We take a 'growth at a reasonable price' approach. We look at companies from the bottom up, taking a long-term approach. Our turnover tends to be very low, about 30%. We're a boring fund.
"Having said that, we do look at the macro perspective, but more in terms of a 'negative screen', that is, to stay out of certain countries. We have no investments in Venezuela, for example. We don't like what Chavez is doing with nationalization of assets and so forth.
Forbes/Christy: How about a few stock picks?
Pangaro: "In Mexico, we like America Movil (NYSE: AMX), which is a mobile phone company with operations across Latin America. It's an extremely well-run company with an excellent position in many countries.
"We think the growth of mobile penetration will continue to be strong in the region and we think the market is underestimating America Movil's earnings and margin expansion potential. It's trading at about 13 times our estimates for 2008 earnings and we think it can deliver 30% growth. And returns on capital are also very high.
Forbes/Christy: What do you like in Brazil?
Pangaro: "We like the banks. One is Banco Itau (NYSE: ITU). Banking penetration rates are still very low in Brazil, and banks have been growing their loan books at close to 30%, with high profitability. Asset quality has been improving for the last few quarters. Itau is trading at about 11 times next year's earnings, and we think their earnings can grow at a 20% pace over the next three years.
Forbes/Christy: Any names beyond Brazil and Mexico?
Pangaro: "In Argentina we like Tenaris (NYSE: TS) ,which makes steel tubes for the oil industry. It has been a very good performer over the past three years. The company dominates the market for high-end pipes and has very strong margins.
"Their products tend to be used for offshore drilling in very deep waters, which is a general trend that will continue to benefit Tenaris. Only about 6% of their sales come from Argentina, so it's a truly global company."
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