Monthly Report - June
MORGAN GRENFELL LATIN AMERICAN COMPANIES TRUST
13 July 1999
REPORT FOR THE MONTH OF JUNE 1999
SUMMARY
The regional index rose in June, more than making up for May's small
correction, as concerns about Fed tightening lessened with Greenspan's
'neutral stance' and the quarter point increase in US rates.
Latin American markets were led by Mexico, our largest area of investment,
which rose just over 10%. Brazil rose 5.8% but Argentina fell nearly 3%.
Chile performed well with a rise of 7.5% benefiting from another interest rate
cut but, more importantly, a pick-up in the copper price.
The regional index during the month rose 6.5%, and our NAV 6.1%. Our share
price increased 5.6% to 65.75p, a discount of 21%.
During the first six months of the year we have now seen a rise of 36.5% in
the regional index and of 35.7% in our NAV. Our share price, benefiting from
a sharp contraction in the discount, has risen 56.5%.
BRAZIL
Interest rates have continued to fall, although only modestly during the month
due to the increase in the USA. The benchmark Selic rate now stands at 21%,
down from the devaluation level of 45%. The latest economic data suggests
that the worst of the recession has now passed with a moderate decline of 2.4%
in industrial production and signs of improving consumer confidence. We are
now seeing monthly dis-inflation and our target for 10% inflation for the year
now looks very conservative.
In the stock market, the combination of cheap valuations and declining
interest rates justifies our renewed confidence and increased exposure.
During the month we completed our new investment in Gerdau in the steel sector
and we also took a position in Banespa the partially privatised state bank of
Sao Paulo where we are expecting the State to sell control to a strategic
investor. We marginally decreased exposure to another bank, Banco Itau which
has performed very strongly, to fund this investment.
MEXICO
It seems that Mexico has been successful in controlling a soft landing of the
economy in the first quarter; all the evidence now points to increasing
economic activity. Industrial production grew 4.3% in April andwe are
expecting GDP growth of about 3% for the year as a whole which will compare
very favourably with Argentina and Brazil.
Importantly, as we move towards the year 2000 elections the economy is on a
strong footing, with an undemanding fiscal deficit, and is also now benefiting
from the 'windfall' of a stronger oil price. Our confidence of a smooth
government transition is increasing althoughthe election process is still at
an early stage.
We remain overweight in Mexico despite the increase of over 50% in the stock
market this year. The outlook remains constructive with a recovering economy
and a robust corporate profit growth which is likely to exceed analysts'
expectations. We made no changes to our holdings during the month.
ARGENTINA
As discussed last month, we used the surge in the market following the Repsol
bid for YPF to reduce our exposure to the market and this reduction has
continued since the month end. Although we have been less concerned than some
about the viability and continuation of currency convertibility our principal
concern is that we think the economic recovery is going to be rather frail and
lagging what we expect in Brazil and Mexico. That, andthe combination of the
highest equity valuations of these three countries, are the principal reasons
why we have not reinvested the YPF proceeds in the Argentine market and have
further cut our positions.
CHILE
We have remained underweight in Chile for some time since we do not feel that
the economy can recover strongly until commodity prices improve, although
interest rates continue to be cut. The improvement in the copper price in
June resulted in a good bounce in the market but we have yet to see any
evidence of economic improvement. This may come if the copper rally is
sustained and we may then re-consider our underweight position. We made no
changes to the portfolio during the month.
SMALLER MARKETS
During the month the Colombian central bank has let the currency band slip 9%
and has also widened the band resulting in a devaluation and a fall of nearly
22% in the value of the equity market index. This followed a two day attack
on the peso and the use of about $200m of reserves. The government is also
trying to address the fiscal deficit which was a legacy of the previous
Government. The devaluation does at least permit interest rates to fall which
may help the economy to recover, however most analysts are still cutting GDP
forecasts and a negative outcome for the year is expected. We have a very low
level of exposure to the market which is maintained simply because the
valuations of our remaining shares are so low. It will probably be some time
before we feel the need to increase exposure again. In contrast we have
maintained our overweight in Peru. During June the market rose nearly 3% and,
although it has lagged the regional index, a 20% increase since the start of
the year has been worthwhile. We believe we are seeing the first signs of
improvement in the economy particularly on the export side although domestic
consumption remains weak. We made no changes to our holdings during the
month. Our avoidance of Venezuela, despite an important improvement in the
economic outlook resulting from the oil price, looks fully justified by the
recent actions of the President. There are still no precise details about how
the Chavez government plans to change the constitution or to improve the
economy. The market rose 3.2% in June and is not much better than flat year
to date.
NET ASSET VALUE
Fully diluted
30/06/99 31/05/99 30/06/99 31/05/99
83.0p 78.2p 85.9p 81.9p
MID-MARKET SHARE PRICE 30/06/99 31/05/99
Ordinary Shares 65.75p 62.25p
Warrants 21.25p 18.0p
Market exposure
30/06/99 31/05/99
EQUITIES
Argentina 7.6 12.0
Brazil 29.3 28.2
Chile 9.0 9.1
Colombia 0.7 1.0
Mexico 41.7 40.1
Peru 4.9 5.2
Other 1.3 1.5
TOTAL PORTFOLIO 94.5 97.1
Net Current Assets 5.5 2.9
------ ------
- -
TOTAL 100.0 100.0
------ ------
- -
Based on total assets less current liabilities of £51.7
million (£48.7 million).
GEARING
Borrowings and Gearing at 30/06/99 31/05/99
£000's £000's
NIL NIL
==== ====
LARGEST HOLDINGS (market value £37.2 million equal to
76.2% of total portfolio)
% of
£000's portfolio
Telmex 6,101 12.5
Telesp 1,887 3.9
Organiz Soriana 1,821 3.7
Vale do Rio Doce 1,782 3.7
Tele Nort Leste 1,766 3.6
Grupo Modelo 1,722 3.5
Grupo Televisa 1,635 3.4
Unibanco 1,603 3.3
Cemig 1,515 3.1
Desc 1,493 3.1
Banco de Galicia 1,413 2.9
Telecom de Chile 1,413 2.9
Petrobras 1,378 2.8
Embratel 1,144 2.3
Gissa 1,130 2.3
Kimberly-Clark 1,119 2.3
Alfa 1,010 2.1
Telefonica de Argentina 995 2.0
Cemex 972 2.0
Perez Companc 921 1.9
Cementos Lima 902 1.8
Quinenco 892 1.8
Femsa 885 1.8
ICA 5% Conv. 15/3/04 871 1.8
Grupo Carso 840 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.
Latest directors dealings
- 1 day ago Savannah Energy
- 1 day ago Buccaneer Energy PLC
- 1 day ago Savannah Energy
- 1 day ago Carclo
- 1 day ago Schroder Japan Growth Fund