Investing in emerging markets is not for the faint of heart. Conditions and markets change quickly and unpredictably. In pre-Donald Trump times, Latin America seemed on the upswing, with political and economic conditions driving a turnaround.
Indeed, even with the uncertainty a tough-on-trade Trump presidency brings to the picture, some experts emphasize the positive.
"The best time to invest in emerging markets is when it feels uncomfortable," says Gerardo Zamorano, a director at Brandes Investment Partners LP in San Diego and co-manager of the firm's Emerging Markets Value fund.
His fund bet heavily on Brazil a year ago, when the South American economic juggernaut was in an economic funk tied to a slowdown in China. At that time, he notes, Mexico was the darling among Latin American economies as it was pulled along by a resurgent United States.
"Clearly there is a reversal of roles right now, because Mexico is really the key target for Trump's anti-trade comments. So the sentiment toward Mexico has deteriorated significantly, whereas Brazil is coming out of a very negative sentiment and had one of the best performances in all markets last year."
He sees the underpinnings of Brazil's comeback present in other Latin American countries that have moved from leftist governments to more pro-business regimes, notably Argentina, Peru and, likely, Chile, where pro-business candidates are leading in the runup to an election late this year. "They are going back to more orthodox management, more pro-business governments, and that is helping them a lot."
Other positive factors in Central and South America are improving trade competitiveness, thanks to lower currency valuations, and reforms such those made to Mexico's energy sector. Also at work are firming commodity prices, controlled inflation and still-attractive stock prices in general, says Warren Skillman, senior managing director at Boston Co. and manager of the CIBC Latin American Fund.
Given Trump's anti-immigrant and anti-trade statements during the election and since, Mexico has been singled out as the one Latin American economy with the most to lose. The Mexican peso has lost value since Trump's upset election win, continuing a two-year slide in value against the U.S. buck.
"I guess I'm not as pessimistic as the peso might suggest; I do see value in Mexico," says Mr. Skillman. He believes Canada's NAFTA partner will survive the rhetoric storm due to its geographic proximity and intricate cross-border trade and business networks. Even immigration is not much of an issue as net migration to the U.S. has been negative over the past two years.
The Trump effect on Mexico is also on the mind of Mr. Zamorano, who is Mexican by birth.
"About 40 per cent of the content of the Mexican exports to the U.S. are U.S. pieces themselves," he says. "Especially in the assembly and auto production, there is a lot of back and forth along the border."
Given that a significant percentage of goods that travel from Mexico to the U.S. is ultimately shipped elsewhere, Mr. Zamorano sees Mexico as more of a trade ally than trade foe.
"The low cost of labour in Mexico should be seen as something that helps U.S. companies to become competitive against Asia," he says. "You can look at the trade deficits or you can look at part of the value chain that global players in the U.S. benefit from."
Tyler Mordy, president and chief investment officer of Toronto-based Forstrong Global Asset Management Inc., says the peso pessimism post-Trump "has gone too far." Mexico is not the trade villain that many suggest, he adds.
"The U.S. trade deficit is only a quarter of its exports to the country, compared with a deficit with Japan of twice exports and with China of three times," he says.
Over all, he is less bullish on Latin America, viewing Brazil as weak and slow to profit from a pickup in global trade. "Also, many of Latin America's economies are geared toward the oversupplied commodity complex. Trump can't materially change this, either. A better opportunity in the post-Trump world is Asia."
Trump's win marked the death of former President Barack Obama's "pivot to Asia" and the centerpiece Trans-Pacific Partnership trade deal. That leaves China to deepen its trade and economic ties in Eurasia "as the uncontested blueprint for future economic integration" in the region, he concludes.
Asia, not Latin America, should draw the attention of emerging-market investors, Mr. Mordy says.
"Why not play a Trump world by buying into Asian countries, regions that have radically sharpened their competitiveness through currency debasement over the last four years, and benefit more from a lower oil price and, if one insists on measuring valuation, trade on far cheaper valuations?"
For investors who are left trying to figure out how the global economy will play out, another option might be to simply refuse to play, says Dan Hallett, a vice-president and principal with HighView Financial Group in Oakville, Ont.
"Both investors and advisers would do themselves [and their clients] a favour if they stayed away from all of the slices and dices of financial markets, such as by sector, geography. The vast majority of investors and advisers should not be tinkering with these types of allocations because they have no way of knowing whether a market is due for a rebound or not."
Mr. Hallett notes that in 2010, China was expected to pull the world out of recession and U.S. stocks were out of favour. "And yet that's been the best place to be since then," with the U.S. "viewed as the global growth engine, moderate as it is."
Investors seeking global exposure should simply buy a global fund or exchange-traded fund (ETF) that includes emerging market stocks.
"I would never go any narrower than an emerging markets fund or ETF," he says.