A Bet on Latin America’s Secret Success Story

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Your Global Bull Market Alert stock market bets continued to outperform the broader market. Your current Global Bull  Market Alert portfolio includes four top-performing global stock exchange-traded funds (ETFs) — the Global X/InterBolsa FTSE Colombia 20 ETF (GXG), the MSCI Thailand Investable Market Index Fund (THD), iShares MSCI Chile Investable Mkt Idx (ECH) and the Market Vectors Indonesia ETF (IDX) that again hit either 52-week or record highs this past week.

This week’s Global Bull Market Alert pick takes us to one of Latin America’s fastest-growing economies, with Peru’s largest full-service bank Credicorp (BAP).

BAP is Peru’s largest and most dominant full-service bank, operating in commercial banking, insurance and investment banking. It has between 51% and 67% market share in all of the important sectors of the financial business in Peru — a country of close to 30 million people.

BAP operates in a sweet spot in terms of Peru’s level of economic development. Peru has among the lowest banking-penetration rates in Latin America, in terms of retail loans, credit cards and branches. That means that BAP is set to continue its net income growth, of close to 30% per year since 2004, for many years to come. The bank certainly is outperforming expectations. During the most recent quarter, the company reported earnings per share (EPS) of $2.03. That blew away analyst estimates of $1.65.

In addition, the Peruvian economy may be one of the best-kept secrets in the global economy. Its gross domestic product (GDP) per capita has doubled in the last seven years and is expected to grow at 7.5% to 8% in 2010. Peru also is expected to be the fastest-growing Latin American economy over the next five years, surpassing the growth rates of even BRIC-favorite Brazil. And as the world’s largest producer of silver, Peru also has become increasingly important as a trading hub between China and Brazil. No wonder that Peru itself is one of the best-performing stock markets of 2010 so far.

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So buy Credicorp (BAP) at market today and place your stop at $96.00. Although there are options on BAP as well, the bid/ask spreads are too wide to make sense of such a move.

Portfolio Update

iShares MSCI Chile Investable Mkt Idx (ECH) closed the week at a record high of $71.53, rising 1.74%. Chile continues to outperform its regional rivals after the central bank said it now expects gross domestic product growth of 5% to 5.5% this year. ECH remains a BUY.

UltraShort Euro ProShares (EUO) rose 2.7% this week, as the euro resumed its downward trend. With bond vigilantes skeptical of Greece’s austerity measures, Greek yields now are within spitting distance of breaking out past the May high. That’s bad, bad news for the euro, and good news for EUO, which now is back to a BUY.

iShares FTSE/Xinhua China 25 Index (FXI) dropped slightly this week, even as China is showing little direction. This weakest performer among global emerging markets is a HOLD.

Global X/InterBolsa FTSE Colombia 20 ETF (GXG) hit yet another record high, ending the week 1.48% higher. With rating agency Moody’s boosting its outlook on Colombia to positive, the country may be in line for a re-rating. Your bet on Colombia remains a BUY.

Market Vectors Indonesia ETF (IDX) broke through the $80 level for the first time ever, rising 3.15% on the week. The “Next BRIC” remains a BUY.

Itaú Unibanco Holding S.A. (ITUB) ended the week slightly lower. As the Itaú Unibanco is the largest nongovernment-owned bank in Brazil, it stands to see substantial growth as more and more Brazilians buy homes. ITUB is a BUY.

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iShares Silver Trust (SLV) ended the week just about where it started, even as silver flirts with the $20 per ounce level. “Poor man’s gold” remains a BUY.

iShares MSCI Thailand Investable Market Index Fund (THD) closed at yet another record high. Most foreign investors have missed out on the advance so far this year — with foreign participation in the Thai market at an all-time low of 11%, down from 40% three years ago. THD remains a BUY.

P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy or on my new blog, NickVardy.com.

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