Wealth Management

Latin America Beyond peak trade

A UBS Wealth Management Chief Investment Office White Paper

Under current global conditions, Latin America is unlikely to be able to export its way to economic development as it did for the better part of the 2000s. The region needs to look for and nurture domestic sources of future growth. Its demographics are favorable and the region is spending more than emerging market peers in fields like healthcare and education - but all this has yet to translate into better outcomes.

Working age population includes individuals between 15 and 65 years of age

Source: UN, UBS, as of 2015.

The lower the index level, the higher the human development

Source: World Economic Forum Global Competitiveness report, United Nations, World Bank, International Monetary Fund, UBS as of 2016.

Productivity in Latin America should be supported by strengthening institutions, friendlier business conditions, and a relatively positive environment for entrepreneurship and innovation by developing world standards. However, the region will take time to tackle its headwinds, in particular its large informal economy and numerous public safety issues. It also has poor levels of savings and investment that account for its shallow domestic capital markets. As a result, the region has insufficient, inefficient, and poor-quality infrastructure that has turned into a broader economic Achilles heel.

Index ranges from -2.5 (weak) to 2.5 (strong)

Source: World Economic Forum Global Competitiveness report, UBS, as of 2015.

Overall quality of infrastructure (7 is best). Regional aggregates are GDP weighted

Source: World Economic Forum Global Competitiveness Index, UBS, as of 2015.

From an investment perspective, Latin American financial assets have done better than those in most other countries in the past 20 years. The end of hyperinflation and policy shifts to inflation-targeting and floating exchange rate regimes have helped foster growth and reduce vulnerabilities. The focus on low inflation and fiscal prudence should continue in years to come. The development of Latin America's financial industry should result in greater opportunities to diversify and obtain attractive returns.