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Latin America — A Two-Speed Region

South America, which boasts a range of basic resources and agriculture, is showing signs of rebounding from the global recession. But political uncertainty continues to plague the continent.

Last week, a report from Standard & Poor's suggested that Latin American countries' credit ratings may reach record highs in five years. Of the 25 countries the S&P has downgraded during the credit crisis, only four of them have been from the LatAm region.

"Earlier in the year Latin America got caught up in general negative market sentiment and that was clearly related to commodities," Alistair Newton, senior political analyst at Nomura, told CNBC. "We have seen some recovery in Latin American sentiment since then."

But Latin America is still facing problems, particularly political turmoil.

With many countries holding elections in the coming months, Newton said he is concerned the elections will "generate market uncertainty" as "there is a very close correlation between politics in Latin America and market sentiment." Especially as far as the bond market is concerned, he added.

Brazil Still an Emerging Favorite

Most experts believe that Brazil's government is one of the best in the region, which bodes well for the nation's growth.

"Brazil has had an improvement in government," Clem Chambers, CEO of ADVFN, said. "So a really good underlying growth factor is that the government is improving."

Christ the Redeemer statue, Rio de Janeiro, Brazil
AP

"Brazil's government finances are in pretty good shape too," Maya Bhandari, international economist at Lombard Street Research, added.

Indeed Brazil appears to be all experts' favorite, with Bhandari seeing the country being "one of the first economies to recover from this crisis." As a result, Bhandari is a fan of the nation's currency, the Brazilian real, saying it is a carry-trade currency and comes with a positive macro-economic backdrop.

"Currencies like the real tend to do well at the current stage of the upward gap cycle," she said.

"The story with Brazil is it combines commendable structural strength, including a domestic-demand driven economy, and a low current-account deficit, with the fact that it entered this crisis with positive cyclical momentum," she said.

In Brazil and Columbia, "we should expect to see a shallow, very manageable recession, with a fairly nice rebound coming out of it. These are strong decoupling candidates, and also their debt levels are very reasonable, so you have a number of structural factors which are very supportive," Stefan Hofer, emerging markets strategist at Julius Baer said.

"Brazil has weathered the global financial storm relatively well compared to most countries and also the cyclical slowdown that has taken place there is likely to be brief and fairly shallow as recessions go," Hofer said. "The economic outlook certainly justifies the investor's enthusiasm for the market."

The country's recent big oil find and it being a net exporter of food products makes it attractive, experts told CNBC.

"We do like the region. Brazil has some of the best macro-economic outlooks and strategically it's placed beautifully in terms of supplying hard materials or hard commodities to China, India," Shanat Patel, global markets strategist at Liberum Capital said.

Not does Brazil use hydroelectric power for more than 80 percent of its energy needs; the country is also the world's largest ethanol exporter. And now from the government's initiatives, through the development of its state-owned company Petrobras, Brazil is now a net exporter of oil as well.

"In one step they are in the front league of new countries that are bringing up new oil every year," Johannes Benigni, managing director at JBC Energy, said.

"Brazil is now in the situation where its leading trade partner, leading customer for Brazilian exports, is China," Jeff Dayton-Johnson, head of the Americas desk at the OECD, told CNBC.

Patel told CNBC he likes Brazilian companies like Petrobras, Aracruz, Brazil Foods, CVRD and Gerdau.

According to Hofer, Brazilian stocks are up about 40 percent year-to-date. "The performance has been very good," he said.

Other strong countries within Latin America are Columbia, Peru and Chile.

"Chile has come pretty well through the economic crisis despite clearly being affected by the commodities downturn," Newton said.

Mexico Hit by the US Consumer Slump

On the other hand of the LatAm story is Mexico, which has been slammed by the drop in U.S. demand. Mexico's economy has taken strain as manufactured goods demand from the U.S. dried up in the downturn.

Canamelar Style Baked Pork served with rice, guacamole and tortillas, Mexico
AP

The country "hasn't really benefited from the 'China effect'" and is trade-dependant on the U.S., so has therefore been struck down by the consumer slowdown in the United States, Bhandari said.

Mexico's exports to the U.S. comprise of about a fifth of its total economy, she told CNBC. The country is now predicted to contract about 7 percent overall in 2009.

Mexico's output gap is by far the largest of any economy, Bhandari said. In the second quarter the country's output was down 1.1 percent compared to the previous quarter.

"Mexico is quite striking because it's one of the few countries where your real monthly data — your retail sales, industrial production and trade data — is still worsening," she said.

The swine flu pandemic which began in Mexico and closed down its economy for a week also did nothing to help its quandary, as tourism for the country took a hit.

"Big questions in Mexico are remittances," Newton added.

But there is an upside to the Latin American country, according to Patel who told CNBC he doesn't see any further nationalization of companies in the region and sees "private investors potentially being allowed" into Mexico.

Hofer, too, was slightly optimistic, saying "the worst is behind" Mexico.

Bhandari added that the country's inflation has come down significantly, paving the way for the central bank to carry on cutting rates to stimulate the economy.

Other countries struggling in the region, and which experts were not overly keen on, include Argentina and Venezuela — largely because of their "complicated political environments," and requirements to diversify the set of countries to whom they export products and diversifying the number of products they export.

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