To many, South America means high poverty rates, runaway inflation, abuses of human rights, environmental problems, military dictatorships, drug barons, corruption and footballers. The footballers are still evident but the rest, however, is no longer a general reflection of the main countries on the continent - Brazil, Argentina, Chile, Venezuela and Mexico.
The economies of South America are now in a totally different shape from a couple of years ago when, after a period of soaring inflation and booming stock markets, they all came to a grinding halt in 1994 after Mexico, suffering from an economic crisis, devalued its peso. This lead to a rapid decline throughout the region. Devaluation followed devaluation, leaving rising unemployment, bankruptcies and collapsing stock markets in the wake.
Since then things have changed. Governments have introduced economic reforms, including increasing privatisation. Inflation has been reduced. In Brazil, the largest economy in the region, it has dropped to less than 9 per cent, while in Argentina it is now below 1 per cent.
These countries are rich in natural resources and manufacturing is expanding. For example, some of the leading motor manufacturers, including Ford, General Motors, Fiat and Volkswagen Audi, all make cars in Brazil.
This change in economic outlook has been largely overlooked in the UK. Lack of knowledge - of the economies, stock exchange rules and individual companies listed on the various markets - coupled with exchange risks have made the region a largely unknown investment area to British investors.
While many emerging market funds have some of their assets in Latin America, canny investors prepared to put some of their money into funds specialising in the region could make even more spectacular gains. The past couple of years has seen the launch of a handful of general Latin American unit and investment trusts as well as a small number investing in specific countries, but there are far less than those specialising in the Far East.
Already, some of these South American funds are showing high short-term gains. The table shows the growth of the most widely available funds as well as the rise in the most widely used index for the region.
The funds are reflecting the gains made by individual markets this year. Chile, for instance, has risen 19 per cent since the start of 1997, Mexico has been reaching record all-time highs over the past couple of weeks, and Argentina is up 26 per cent. Best of all has been share price performance in Brazil, which has shot up 70 per cent.
Of course, there is no guarantee that these sort of rises will continue. The history of the continent's stock markets so far is boom followed by slump. "But the feeling is that this time round, the markets are soundly based," says Dominic Rossi, who runs NPI's Latin American unit trust.
"The 1994/95 panic was a real test of political commitment to economic reform which Latin America passed. The reforms have survived with sound money policies based firmly on tight public finances. Public debt in the region is now much lower than that found in Europe."
Forecasts are for economic growth in excess of 5 per cent a year for the region. Barring anything unforeseen, Mr Rossi expects the markets to do well while interest rates and inflation continue to fall. "Companies there are undervalued compared with the Far East and the prospects for growth are greater," he says.
This is a view backed by Michael Ashridge, director of Save & Prosper: "For those who appreciate the risks, the returns look like they are there. UK investors have tended to look to at the Far East. If people knew the potential of Latin America, they would know that now could be a good time to invest."
Of course, things could go wrong. If the USA puts up its interest rates, markets could fall world-wide. South America could be more affected than anywhere else because of its dependency on America. But for anyone prepared to take higher-than-average risks, South America could prove attractive over the next couple of years.
Latin American Funds
6 months 1 year 3 years
MSCI EMF Latin American Index (US$) 35 28 15
Abbey Latin America 37 31 n/a
Abtrust Latin American 32 25 3
Baillie Gifford Latin America 35 28 n/a
Edinburgh Latin American 28 15 -16
Fleming Select Latin Americn 35 26 n/a
Govett Latin America 36 n/a n/a
NPI Latin American 36 n/a n/a
Old Mutual Latin American Companies 37 21 -6
Perpetual Latin American Growth 28 17 n/a
Save & Prosper Latin America 35 25 8
Abtrust Latin American 29 22 n/a
Edinburgh Inca 25 7 -30
Latin American 46 32 -4
Morgan Grenfell Latin American 32 19 0
Scudder Latin America 29 22 n/a
Templeton Latin America 21 10 -44
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