We have to keep an eye on Latin America

Moris Beracha.- At the last biannual meeting of the International Monetary Fund — held in Washington — the world growth figures were revised and in the case of Latin America it was announced that the forecasts show that the continent faces a contraction stronger than previously thought and will end the year with an average Gross Domestic Product of 0.6%, which is equivalent to two-tenths lower than what was forecasted three months ago. The organism’s hope is that for the next year this growth of the region is located at 1.6%.

The press reported that IMF adviser Maurice Obstfeld said the projection is that the global economy expands at a rate of 3.1% this year and 3.4% next year, as it predicted in July. The good news is that growth in emerging and developing economies will accelerate for the first time in six years, to reach 4.2% in 2016 and then rise to 4.6% in 2017.

However, the Economic Commission for Latin America and the Caribbean (ECLAC) revised downward projections for growth in economic activity in the region, which in 2016 will shrink by 0.9%. This figure is higher than the 0.8% recession forecasted by the ECLAC in last July’s report. The agency expects a “rebound in economic activity” that will be translated into growth of 1.5%.

The report says that South America, whose economies specialize in the production of raw materials, will be the worst affected by a contraction of 2.2%, dragged down by the 8% fall expected for Venezuela.

With this scenario it is noteworthy that private equity investments continue to enter our region, although certainly with a little more caution, according to what was stated a few days ago at Globo Economía by Cate Ambrose, president and CEO of LAVCA (Latin American Venture Capital and Private Equity Association).

It drew my attention that this specialist could point out that even so the situation is “tremendously attractive”. She says the point is that these investments are looking for long-term profitability, and that is why there is a slowdown in the region in recent times; although it has moderated them, it has not caused them any undue damage.

In the interview Ambrose also points out that the arrival of investment in this modality led by sovereign wealth funds or pension funds, with horizons of search for profitability that have been delayed over the years is offsetting the entry of other types of funds.

She agrees with those who think that there is an additional and positive point in all this and has to do with the entry of a new player in this type of investment that is the Family Office. This type of business is showing increasing interest in the business model offered by private equity, as it is an option to increase the profitability of their portfolios, in times of low interest for money in half the world.

Reading on the subject I found the Transactional Track Record report, which indicated that the Latin American transactional market experienced a 53% increase in the amount of operations registered in the third quarter of 2016, compared to the same period of 2015.

The report explains that this increase has occurred despite a 1% reduction in the number of transactions compared to the same period of the previous year. “In particular, the Latin American M & A market continues to grow steadily in the third quarter of the year, with a total of 496 registered operations, of which 245 have a non-confidential amount totaling approximately 45,848 million dollars. Of these transactions registered in the period, 389 are mergers and acquisitions, 35 private equity transactions and 72 venture capital transactions, ” the report said.

Considering the above, and the economic results of the region, I agree that Private Equity remains the most suitable alternative to boost business in this part of the world.

Martin Brown, who heads the Latin American team for JP Morgan, said: “Bond yields have already been reduced enough in Argentina, so that for those who want to exit the debt market, the Private equity is going to be important.”

I would add that especially now it is an appropriate time because the yields are being very low or are moving in negative fields.

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