Latin America remains a solid long-term investment opportunity, market pros say, as the region's heavyweights Brazil and Mexico continue to draw investor interest.
A long-term bull market in commodities has been a boon for emerging markets that have a heavy emphasis on energy and other commodities-related stocks.
Brazil's stock market recently touched historic highs while Mexico's has been on a recording-breaking tear for sometime. Although one-year gains of 86% for emerging markets darling China outperformed Latin America's 64% return in the past 12 months, that has not been the case over a longer time period.
In the past five years, emerging Latin America has posted annualized gains of 40%, outperforming the 28% gains in overall emerging markets during the same period, according to data culled by Morgan Stanley International.
A closer look reveals that gains are being led by Brazil and to a lesser extent Argentina and Colombia. Brazil boasts a five-year annualized gain of 46%, Argentina has jumped 52% while Colombia is 61%.
Brazil In The Spotlight
"We continue to be quite constructive on Brazil, which has been a major beneficiary of growth in China because of its commodity exports," says George Hoguet, a portfolio manager and emerging markets strategist at State Street Advisors, who also likes Mexico and Peru. "We don’t think China will slow down significantly in the next six months."
In the last few years, Brazil's has made major improvement in its debt, which has boosted confidence. Market strategists continue to view South America's leading economic power as a solid long-term bet, due in part to Brazil's vast natural resources and China's insatiable thirst for commodities.
Rio-based Petroleo Brasileiro, Brazil's integrated oil giant, has gained 610% in the past five years. But Brazilian infrastructure plays such as Telecom Brasileiras, up 95% in the past five years, have also seen strong gains.
Investors looking to make a pure-play investment in Brazil need look no further than the iShares MSCI Brazil exchange-traded fund, up 37% year to date.
Mexico Attracting Attention
But the region is essentially a two-country bet, however, with most indexes heavily weighted towards Brazil and Mexico -- something that could make diversity-seeking investors a bit nervous.
This bias to Mexico and Brazil is reflected in the iShares S&P Latin America 40 ETF, which counts Petrobras, Mexican telecom giant America Movil and South American metal mining titan Companhia Vale do Rio Doce, and Petrobras among its top holdings.
Geoffrey Dennis, equity strategist focusing on Latin America, Eastern Europe and Africa for Citigroup, is a believer in Latin America's long-term growth story. The emerging markets analyst advises investors to keep an eye on Brazil, one of the few countries in the world currently cutting interest rates.
"The economy is improving so that's very much where we would put our money," he says. "In contrast, we think Mexico is quite expensive right now and is due for a short-term correction."
The iShares MSCI Mexico ETF has seen returns of about 23% year to date.
Bear Stearns analyst Thierry Wizman has a similar take on Mexico and recently maintained his "underweight" rating on the country, citing slower growth than in the rest of Latin America, few non-energy growth opportunities and political risks.
Dennis sounds a similar note of caution on the region.
"It's a long-term bull market but we're looking for fairly modest gains over the next 12 months," says Dennis. "The Latin America markets, in the short term, are quite frothy."
Peter Kang is a markets writer for CNBC.com. He can be reached at firstname.lastname@example.org.