Monthly Report-Mar 2000,etc.
Morgan Grenfell Lat Amer Co Tst PLC
11 April 2000
REPORT FOR THE MONTH OF MARCH 2000
SUMMARY
Latin American markets had a weak March, declining by 0.31% in sterling terms
according to the MSCI Latin America Free Index as they succumbed to the bout
of volatility that hit many world stock markets during the month. Various
global events created nervousness in Latin America: the US Federal Reserve
raised rates again in its fifth upwards move since June 1999, NASDAQ suffered
heavy slides at the end of the month, and the oil price was highly volatile,
falling 20% from its peak after OPEC members agreed production cuts.
Nevertheless, our favoured markets, Brazil and Mexico both did well on
fundamentals, up 2.60% and 1.27% respectively. Mexico was awarded a coveted
investment grade rating by Moody's, which carried all the regional markets
higher early in the month. Later in March, Brazil cut its overnight rate to
18.5% from 19% in what we expect to be the first of a series of rate-cutting
moves. For the first quarter, MSCI Latin America Free is now up 4.31% in
sterling terms against a MSCI World Index up only 2.14%.
Our relative performance was good during the month; our NAV rose by 0.20%,
ahead of the index, as our overweights in the best-performing markets
supported us during a volatile period. Our share price fell to 83.5p, a drop
of 0.9%, as the discount widened out in line with the whole sector.
MEXICO
As we commented above, Mexico had a good run in March. Mexico has
outperformed the rest of the region (including Brazil) since October due to a
combination of positive factors: falling inflation (well below the Central
Bank's forecast) and lower interest rates; US economic growth, which continued
unabated; the rising oil price; the major banks' decision to significantly
increase loan loss coverage, and BBV's acquisition of Bancomer, raising the
prospects for further consolidation; a re-rating of Mexico's telecoms, media
and technology-proxy stocks (including banks and retailers) which are major
index weights; strong GDP growth in Q499 and prospects of growth near 7% in
Q100; and Moody's upgrade of Mexico's debt rating to investment grade. These
factors have led real interest rates to fall to around 2.5% (taking into
account 12-month inflation rates as low as 10.11% in March). We believe that
this is as far as the broad market can run in the near term, though there is
still room for individual stocks to rise. We trimmed our interest rate-
sensitive exposure in Mexico towards the end of the month, specifically
Banamex, which is now at a neutral weighting after its strong rally. We have
also reduced our holding in Desc, which is encountering a difficult operating
environment in many of its business divisions; we do not anticipate any
improvement in the next six months. Most of the cash raised has gone to
Brazil, but we have also added to our weighting in Kimberley Clark, as we
consider that consumer spending is likely to remain strong this year.
BRAZIL
We are extremely positive about the Brazilian market for a number of reasons.
Inflation is falling faster than forecast by the Central Bank: latest figures
show 12 month inflation at 6.6% in March against 8.6% in December. As a
result of this subdued inflation, the authorities cut interest rates in March
by 50bp to 18.5%: we believe they can fall significantly further by the year-
end. GDP growth is ahead of expectations: Q499 GDP growth was up 5.2% YOY and
16.9% above the previous quarter. Brazil's sovereign credit rating could be
upgraded as the fiscal deficit narrows; and as real rates fall, domestic
savings will inevitably move from bonds to equities.
In the stock market, consolidation within the banking and telecoms sectors is
likely, a theme which we have been emphasising for some time.
Over the past month, we have added to our Brazil weighting, focusing on the
interest rate-sensitive sectors of the economy: we added to Gerdau, Brazil's
leading manufacturer of long steel, with a successful international business.
Since the month end we have increased our exposure to Unibanco, the cheapest
of the three leading bank franchises, and added a new position in steelmaker
CSN, which should benefit from improving demand and prices in the domestic
market.
CHILE
The Chilean market fell by 1.51% in March in sterling terms. The hawkish
Chilean central bank, noting the strength of the economy (GDP grew 4.9% in
December 1999) and the likely inflationary impact of high oil prices, raised
rates by 25bp to 5.25%.
During the month, we sold our position in banking-to-food conglomerate
Quinenco, the Luksic group's main investment vehicle, in order to invest in
more mainstream opportunities: we added to our position in Telefonica de Chile
and made a new investment in Enersis, the electrical utility owned by Endesa
of Spain, which we believe to have good prospects as the economy recovers.
ARGENTINA
The Argentine market fell 11.46% in March, after a strong performance over the
first two months of the year. This followed some very mixed data releases
which provided no real evidence of the expected economic rebound. On balance
we believe that the economy is likely to stage a degree of economic expansion
in 2000 but that growth will be below consensus. We therefore see no reason
to alter our bearish outlook on the market and remain underweight.
We made no changes to our portfolio during the month.
ANDEAN MARKETS
The Andean markets performed poorly over the month; Peru fell by 10.85% in
sterling terms, Venezuela by 9.15% and Colombia by 2.83%. After the euphoria
following Telefonica de Espana's bid for TDP, the Peruvian market sold off in
line with Telefonica itself, reflecting the de-rating of its internet
subsidiary, Terra Networks; the prospect of an election win for populist
Presidential candidate Alejandro Toledo also unsettled the market. Colombia
was weak despite the successful completion of a $176m new capital issue
by the leading bank, Bancolombia, placed with both domestic and international
investors. Venezuela performed poorly largely in line with the oil price.
During the month, we added a position in CANTV, the Venezuelan telecoms
company, which we find highly attractive due to its cheap valuation ($1100
per subscriber vs $1900 paid last month by Telmex for Conecel in Ecuador).
NET ASSET VALUE
Fully diluted
31/03/00 29/02/00 31/03/00 29/02/00
99.4p 99.2p 99.5p 99.3p
MID-MARKET SHARE PRICE 31/03/00 29/02/00
Ordinary Shares 83.50p 84.25p
Warrants 24.50p 26.75p
Market exposure
31/03/00 29/02/00
EQUITIES
Argentina 1.3 1.9
Brazil 41.1 37.5
Chile 10.2 10.0
Colombia 0.7 0.7
Mexico 44.3 44.2
Peru 1.6 3.2
Venezuela 1.6 -
TOTAL PORTFOLIO 100.8 97.5
Net Current Assets (0.8) 2.5
------ -------
TOTAL 100.0 100.0
------ -------
Based on total assets less current liabilities of £58.4 million (£59.7
million).
GEARING
Borrowings and Gearing at 31/03/00 29/02/00
£000's £000's
NIL NIL
==== ====
LARGEST HOLDINGS (market value £50.4 million equal to 85.6% of total
portfolio)
% of
Country £000's portfolio
Telmex Mexico 9,940 16.9
Tele Norte Leste Brazil 3,321 5.6
Femsa Mexico 2,644 4.5
Tele Centro Sul Brazil 2,397 4.1
Telecom de Chile Chile 2,312 3.9
Petrobras Brazil 2,246 3.8
Banco Itau Brazil 2,210 3.8
Unibanco Brazil 2,189 3.7
Vale do Rio Doce Brazil 2,124 3.6
Telesp Brazil 1,874 3.2
Brahma Brazil 1,662 2.8
Telesp Celular Brazil 1,618 2.7
Soriana Mexico 1,580 2.7
Grupo Televisa Mexico 1,547 2.6
Banamex Mexico 1,536 2.6
Embratel Brazil 1,414 2.4
Gerdau Brazil 1,404 2.4
Grupo Modelo Mexico 1,325 2.3
Alfa Mexico 1,288 2.2
Kimberly-Clark Mexico 1,161 2.0
Cemex Mexico 1,111 1.9
Credicorp Peru 950 1.6
CANTV Venezuela 905 1.5
Gissa Mexico 821 1.4
Desc Mexico 815 1.4
FINANCIAL CALENDAR
Preliminary Results Announced 26 April 2000
For further information, contact Rosie Bichard at Deutsche Investment Trust
Managers Limited on 020-7545-6000.
For additional copies, changes of address or details of our Private Investors'
Plan and low cost ISA contact Mark Pope on 020-7545-0520, e-mail address:
mark.pope@db.com
Issued by Morgan Grenfell Latin American Companies Trust PLC and approved by
Deutsche Investment 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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