China and India are the emerging economies most frequently hitting the headlines, but now is a good time to invest in Latin America, according toBaring Asset Management.

Mike Simpson, recently appointed head of Latin American equities at Barings, highlights that the MSCI Latin America 10/40 Index has started 2012 with a bang, returning 12.3 per cent in US dollar terms last month.

Simpson thinks that regional equities will continue to recover from their current low levels, which means that the market reflects good value. The resilience of China and the US is important because of their respective links to Brazil and Mexico, the two biggest economies in the region.

“There is also scope for governments across Latin America to reduce interest rates as, unlike the developed world, short-term rates remain well above inflation levels,” he says. “Brazil is a case in point and following a period of rate rises in 2011, the central bank has now moved to cut rates in a bid to stimulate economic activity.”

Brazil is also the economy where Barings sees greatest opportunities. “At the stock level, Banco de Brasil is a key holding for the portfolio and we expect interest rate cuts to help the company expand its loan book as it further consolidates its position in Brazil’s fast-growing retail banking segment,” Simpson says.

Barings is more cautious on Mexico, where their asset manager sees little upside potential. However, the weakness of the peso is positive for exporters in the country, especially on the back of the economic recovery in the US.

Simpson is also upbeat about the potential of the smaller and lesser known Andean economies of Chile, Peru and Colombia: “Our exposure here largely centres on domestic demand proxies as a burgeoning middle-class continues to develop an appetite for consumer goods of all kinds, ranging from everyday items to large aspirational purchases,” he says. “Based in Chile but deriving a significant proportion of its earnings from Peru and Columbia, department store Falabella is an example of a stock which plays directly into this theme.”

In the long run, Simpson believes that there is a strong outlook for economic growth across the continent on the back of its vast natural resources and favourable demographics.