Page 8 - BrandZ Top 50 Most Valuable Latin American Brands 2015

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LATIN AMERICA
OVERVIEW
THE LATIN AMERICAN ECONOMIC CONTEXT
In the last two Latin American GDP growth
It was the first time that Latin America grew less than the average of the 34
TOP 50 MOST VALUABLE LATIN AMERICAN BRANDS 2015
years the Latin countries of The Organization for Economic Cooperation and Development (OECD).
Brazil is in bad shape, with political
and economic problems in addition to inflation. Argentina also faces political and economic problems, and Venezuela has had serious problems with internal supply, high inflation and political issues.
The deceleration of the economy in the region – decreasing steadily since 2010, when it reached a high 6.1% GDP growth, can be explained by the following factors:
In addition to this unfavorable scenario, Moody’s Investors Service has downgraded Brazil’s government bond rating from Baa2 to Baa3, a clear signal that the country has delivered less than expected in terms of economic performance.
Another important index that reflects the economic instability in Latin America is the Emerging Markets Bonding Index – EMBI+, produced by JP Morgan, which tracks emerging markets, government debt and corporate debt asset classes.
Country risk - EMBI +
Almost all the main countries in the region have risen in terms of risk (except Chile).
As a consequence of all these factors, market capitalization of Latin American public traded companies in the region suffered a substantial decrease, as shown in the chart below
The region has to learn how to deal with the new external context: lower growth of emerging economies, less dynamism of developed economies and lower prices of raw materials. All these factors greatly affect the economic growth and development of the region, which require significant changes to aspects such
as investment levels and productivity growth with a long-term perspective.
Companies’ Market Value
Market capitalization of Latin American public traded companies in the region suffered a substantial decrease.
American region 5.7% 5.3%
6.1% 4.6%
presented relatively low GDP growth
5% 5.3% 4.2%
3.5%
2.6%
rates, around 2%. 0%
Source: CEPAL
1.
2.
3.
In the most important countries, much of the growth in 2010 was
due to the increase in middle class purchase power and relative stability of public accounts. Also, prices of commodities were high and China grew 2-digits per year – China is a huge market for Latin American companies.
For the domestic market, factors like the ascension of middle class and stability of public policies failed from 2011-2014 and generated a very small growth in the period. For 2015, the World Bank is forecasting a worse scenario, with a GDP growth for Latin America of merely 0.4%. According to the bank, the region is practically in recession.
During the same period, prices of commodities like iron, steel and oil, decreased substantially. Part of the problem is the slowing Chinese economy, but also, in the case of oil, it was strongly influenced by the industry context.
This is far removed from the prosperous scenario seen from 2004 to 2012, when the rates reached over 5% in many years, according to CEPAL – Economic Commission for Latin America and
the Caribbean. In 2014, the region had
a 1.3% GDP growth, the second worst performance in the last 10 years (in 2009 the region showed a -1.8% GDP growth, a reflection of the world financial
GDP growth
-1.8%
5.8%
crisis). 2.7% 2.9%
The countries that most contributed
to the slowdown in the economy
performance of the region in 2014 were
Brazil, Argentina and Venezuela. Brazil,
the largest country with around 50% of
participation in the region’s GDP, had
almost a zero growth of 0.1%, Argentina 0% 0.1% grew only 0.5% and Venezuela dropped
2.1%
2.4%
4.0%. Other important countries in the Brazil Argentina region such as Colombia achieved a GDP
growth rate in 2014 of 4.6%, 2.4% for
Peru, while Mexico and Chile registered
Colombia
Peru
Chile
Brazil Ibovespa Mexico IPC
Source: Bloomberg
2.1% and 1.9% respectively. However,
almost all of these countries, with
the exception of Mexico, have shown 2014 decreasing GDPs in the last two years.
1.8%
3.1%
2012
1.3%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2013 2014
2013
Source: CEPAL
0.5%
1.4%
Mexico
1.3%
Venezuela
Chile Peru
4.9%
4.6%
3% 2% 1%
0% 2013 Brazil
Mexico
10% 0% -10% -20% -30%
4.2%
1.9%
2014 Colombia
July 2015
Source: JP Morgan
2013
2014
Chile IGPA Peru BVL
July 2015 Colombia IGBC