Monthly Report - August 1999
MORGAN GRENFELL LATIN AMERICAN COMPANIES TRUST PLC
10 September 1999
REPORT FOR THE MONTH OF AUGUST 1999
SUMMARY
Although the correction continued during August some recovery during the last
ten days of the month left the regional index down just 2.3% and still up 20%
since the start of the year.
The primary reason for the correction has been concern about the direction of
US interest rates although, in Brazil, recent weakness is also a function of
local politics and the pace of reform. Political considerations are also
affecting Argentina and Mexico with Presidential elections in the former in
October this year and in the latter mid-next year. Although there will
undoubtedly be a lot of noise, we are not expecting the outcome of either
election to make much difference to the underlying economic outlook; positive
in Mexico, less so in Argentina.
The regional rally was led by Argentina which rose 5.1% in the month (having
fallen much more than Brazil and Mexico in July) Brazil fell 3.8% and Mexico
fell 2.3% during the month. Despite the fact that we are overweight in Mexico
and Brazil and underweight in Argentina, our NAV fell less than the regional
index with a decline of 2.0%.
During the month we repurchased 350,000 shares at 54.5p, leaving 61,936,050
shares in issue.
BRAZIL
The Brazilian budget for 2000, released during the month, contained no big
surprises however the growth assumption for next year may prove a little
optimistic (at 4%). During the month the local market staged a modest rally,
but the deterioration of the currency (which fell about 10%) more than offset
this.
We made no changes to our portfolio following last month's increases and
remain marginally overweight.
MEXICO
Data released during the month confirms that the economy is in good shape.
Industrial production for June rose 5.2% and retail sales have also begun to
re-accelerate with an increase of 2.8% in June. Both figures were better than
expected as was the subdued level of inflation, which rose just 0.3% in the
first half of June and expectations are now that monthly rates may not exceed
1%. There is clearly potential for interest rates to fall further.
Despite good domestic news the market was the weakest of the major markets
during August although it remains the best performing this year. Concerns
about the impact of a potentially slowing US economy have been overdone in our
view and we remain convinced that our overweight will continue to benefit
performance. We made no changes to the portfolio during the month.
ARGENTINA
As discussed last month we now have just two holdings in this market and are
underweight. Although the market recovered some of last month's weakness
during August, outperforming Brazil and Mexico we remain convinced that the
economic outlook is less bright than in these two other countries and that in
particular, the currency link will result in increasing interest rates in
tandem with the US and that currency inflexibility makes manufacturing very
uncompetitive. It is hard to see a catalyst for stronger growth.
Although our underweight hurt our relative performance the two stocks that we
own strongly outperformed, more than offsetting the cost of the underweight
during the month.
CHILE
We are becoming more constructive towards Chile and believe that, although the
economy remains in recession (the first in sixteen years), we may now be at an
inflexion point.
The causes of the recession (El Nino, Asian trade, copper weakness, very high
interest rates and the drought) are all now reversing with interest rates at
historically low levels and likely to fall further. The local pension funds
(who dominate the market) now have a very low exposure to domestic equities.
Valuations, although not the lowest in the region, are very low compared to
history. We are considering reducing our underweight and are actively looking
at a number of new investment ideas.
SMALLER MARKETS
These smaller markets remain sidelined for the time being. All declined
during the month with Venezuela falling the most, down 8.5% (we have no
exposure) Colombia falling 6% (we have very little exposure) and Peru the best
of the bunch down 3% (we remain overweight and optimistic).
NET ASSET VALUE
Fully diluted
31/08/99 31/07/99 31/08/99 31/07/99
72.0p 73.4p 76.8p 78.0p
MID-MARKET SHARE PRICE 31/08/99 31/07/99
Ordinary Shares 56.50p 58.50p
Warrants 16.50p 17.25p
Market exposure
31/08/99 31/07/99
EQUITIES
Argentina 6.1 5.2
Brazil 31.1 31.4
Chile 9.6 9.9
Colombia 0.7 0.7
Mexico 44.8 44.9
Peru 4.3 5.5
Other 1.5 1.5
TOTAL PORTFOLIO 98.1 99.1
Net Current Assets 1.9 0.9
------ -------
TOTAL 100.0 100.0
------ -------
Based on total assets less current liabilities of £44.6 million (£45.7
million).
GEARING
Borrowings and Gearing at 31/08/99 31/07/99
£000's £000's
NIL NIL
==== ====
LARGEST HOLDINGS (market value £34.5 million equal to 78.8% of total
portfolio)
% of
Country £000's portfolio
Telmex Mexico 5,504 12.6
Vale do Rio Doce Brazil 1,980 4.5
Banco de Galicia Argentina 1,802 4.1
Grupo Televisa Mexico 1,662 3.8
Petrobras Brazil 1,651 3.8
Grupo Modelo Mexico 1,586 3.6
Tele Norte Leste Brazil 1,493 3.4
Telesp Brazil 1,319 3.0
Soriana Mexico 1,309 3.0
Cemex Mexico 1,281 2.9
Telecom de Chile Chile 1,259 2.9
Desc Mexico 1,240 2.8
Alfa Mexico 1,215 2.8
Unibanco Brazil 1,143 2.6
Femsa Mexico 1,100 2.5
Brahma Brazil 971 2.2
Cementos Lima Peru 969 2.2
Gissa Mexico 958 2.2
Quinenco Chile 927 2.1
Perez Companc Argentina 913 2.1
Cemig Brazil 904 2.1
ICA 5% Conv. 15/3/04 Mexico 854 2.0
Kimberly-Clark Mexico 847 2.0
Electrobras Brazil 832 1.9
Gerdau Brazil 737 1.7
Financial Calendar
Half year 31 August 1999
For further information, contact Alan Nesbit at Morgan Grenfell Trust
Managers Limited on 0171-545-6000.
For additional copies, changes of address or details of our Private
Investors' Plan contact Mark Pope on 0171-545-0520, e-mail address:
mark.pope@db.com
Issued by Morgan Grenfell Latin American Companies Trust PLC and approved by
Morgan Grenfell Trust Managers Limited, regulated by the Investment Management
Regulatory Organisation and manager of Morgan Grenfell Latin American
Companies Trust PLC. Investors should be aware that past performance is not
necessarily a guide to future returns, values can fall as well as rise and
investors may not get back the amount they invested. Fluctuations in exchange
rates may also affect the value of your investment. Investment in Morgan
Grenfell Latin American Companies Trust PLC presents those risks associated
with emerging markets which may at times be illiquid and/or volatile.
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