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Smaller stars shine brighter: Investing in Latin America’s Seven Sisters

Market Commentary

27 January 2021

Investors in Latin America with a focus on liquid instruments naturally gravitate towards the largest countries in the region. Brazil, Mexico, and Argentina jointly account for 82% of fixed income and some 88% of listed equities in Latin America.  However, large country size does not equate with large opportunity. When it comes to illiquid investments in particular, such as private equity and infrastructure, the key criteria for successful investing are stable economic performance and predictable policy frameworks.

This is why the case for considering illiquid investments is particularly strong in some of Latin America’s smaller countries. The Seven Sisters – Colombia, Peru, Ecuador, Panama, Costa Rica, Dominican Republic, and Guatemala – together make up about a fifth of Latin America’s GDP. As a highly nuanced group of countries, they are representative of the region as a whole, yet they perform stronger economically and have superior policy frameworks compared to the rest of Latin America. In other words, they have fewer of the downside risks that can accompany investments in the larger countries in the region.

This report outlines the key economic and policy features of the Seven Sisters in Section 2 and compares them to the rest of Latin America in Section 3. Section 4 describes the broader case for investing in Emerging Markets (EM) right now with specific focus on key issues, such as Covid-19, growth rates, debt, and the outlook for EM currencies, stock, and bonds. 

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