The two are probably the most interesting emerging market areas in the world at the moment.
The future is bright for Latin American and Asian markets
Asia and Latin America are probably the most interesting emerging market areas in the world at the moment, not only because of their different and exciting cultures, but also because their economic histories have been so varied. If we consider the performance of markets in both areas, investors might be misled to think that Asian markets have outperformed their Latin American counterparts, but that is not necessarily the case during all time periods. For example, up to November 2009, the MSCI AC Asia ex Japan Index was up 65 per cent in US$ terms, while the MSCI Latin America Index was up 100 per cent. In 2008, the performance of both areas was about the same, with Asia moving down 52 per cent and Latin America falling 51 per cent.
In 2007, Latin America again beat Asia. While Asia was up 41 per cent, Latin America enjoyed a rise of 51 per cent. Again, in 2006, while Asia was up 34 per cent, Latin America recorded a larger gain, one of 44 per cent. Of course, there have been periods when Asia performed better than Latin America, but recent history shows that the Southern Hemisphere has been the leader in performance rankings.
If we look at the demographic and economic characteristics of the two regions, there are some significant differences, as well as similarities. Let's start with numbers; while Asia's population stands at around 4 billion, Latin America is home to only around 550 million people. Population growth in Asia has been slightly lower than that of Latin America; between 2003 and 2008, Latin America's population grew by 1.3 per cent, while Asia's grew by 1.2 per cent.
In the economic arena, Asia has outperformed Latin America. Between 2003 and 2008 Asian economies expanded by 8 per cent a year on average, compared to 5 per cent for Latin America. The faster pace has allowed Asia to catch up in terms of annual output per person, but at US$2,600 (Dh9,550) the region still lags Latin America, where the figure is $7,580. In the foreign reserves area, Asia is definitely superior, with reserves now surpassing $3.5 trillion, while in Latin America total reserves amount to only about $500 billion. Although Asian exports and imports amounted to $7.3tr in 2008, compared to Latin America's $1.7tr, the growth of trade for both regions has been about the same during the last five years, with an annual average growth of 19 per cent. Looking at the stock markets in both regions, the market capitalisation of Asian bourses has reached $9.5tr, compared to a figure of $1.8tr for Latin America. In addition, Asia boasts a larger number of listed companies ? about 15,200 ? compared to Latin America's 1,300. Nevertheless, we continue to find good value in Latin American stock markets, despite its smaller size.
Currently, the price/earnings ratios of both areas average 14x, while the price to book value ratios are also the same, at about 2x. However, dividend yields differ, with Asia coming in at 2 per cent and Latin America at 3 per cent. The large markets in Asia are China and India, where the emphasis is on manufactured goods and services, while in Latin America Brazil, the dominant country, is strong in commodity exports.
Nevertheless, there opportunities for investors in almost all sectors in both regions, and we are especially bullish on manufacturing, consumer and banking stocks in both markets. Since a portion of your portfolio's holdings should be in emerging markets, do some research on these two areas as the world's economy emerges from recession. Dr Mark Mobius is the executive chairman of Templeton Asset Management Ltd