2016: the year of the axe and the deal.

Author:Price, John
Position::OPINION: THE CONTRARIAN
 
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As Latin American regional managers finalize their plans for 2016, they face a telling dilemma. Now that the decade-long super-cycle of growth is over, should their companies cut and run or double down? The best strategy likely involves a bit of both. LAC's forty-odd countries can be divided into three camps and each grouping warrants a unique strategy in 2016.

The first camp is comprised of economies tied most closely to the Unite States, the worlds growth engine at present. Included in this group are Mexico, Central America and the Caribbean. The U.S. is importing goods in record numbers from these markets as well as outsourcing manufacturing and service jobs to them as American labor markets tighten and the dollar surges. American tourists are returning in record flocks to Caribbean markets including the forbidden fruit of Cuba, the regions fastest growing destination. U.S. outbound remittances are breaking records again and end up disproportionately in these markets. With the exception of Mexico, depressed oil prices are a welcome trend in these markets, strengthening their currencies and subsequently boosting consumption.

For multinationals operating in Mexico, Central America and the Caribbean, growth cannot come fast enough. Most are beefing up their marketing budgets to take advantage of the anticipated consumption boost. In Mexico, the 2015 peso depreciation, caused by a drop in oil exports, offers a short-term buying window for companies looking to purchase market share in what most analysts predict will be a long-term growth story. Pena Nietos reform program has been inconsistently implemented but it remains a step in the right direction and will boost productivity. In contrast to Brazil, Chile and Colombia, Mexican consumer debt still has room to grow.

The second group of markets suffered from the resource pricing shock, but relatively strong governance points to a quick turnaround, albeit with continued currency weakness. Included in this grouping is Colombia, Chile, Peru, Uruguay and possibly Paraguay. In Colombia especially, where the peso has plunged over 50 percent since mid-2014, investors enjoy a once-in-a-decade buying opportunity for consumer facing businesses. In Colombia, Chile and Peru, astute mining investors will soon begin mopping up the graveyard of junior mining assets left abandoned after two years of depressed mineral prices.

The third grouping of countries is the...

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