BoA Merrill Report Examines Business Growth Prospects In Latin America

Eliane Chavagnon

29 August 2013

There is an abundance of opportunities available to international firms considering a move into Latin America, as the global economy continues to be fueled by growth in emerging markets like Brazil and Mexico, writes Juan Pablo Cuevas in Merrill Lynch’s latest report on the region.

The report, Strategic Treasury for Latin America 2013, identifies the opportunities, challenges and market variations that companies may encounter when doing business in the region.

The firm cites figures from last year's UN conference on trade and development, which showed that LatAm logged the highest growth in foreign direct investment globally, with Chile seeing the steepest increase within the region.

Dennis Dubois, Merrill's director of global trade, LatAm, highlights that Brazil is the most significant FDI destination in LatAm. The country is particularly attractive to Chinese investors among areas like energy and metals. Meanwhile, an “influx” of FDI in Mexico is fueling growth there, especially within the manufacturing sector.

While Latin America is by no means immune from the challenges brought about by the global financial crisis, the ramifications are “generally quite limited,” Cuevas says. Based in Miami, FL, Cuevas is head of global transaction, LatAm and the Caribbean, BoA Merrill.

“For example, the interdependence between Latin America and Asia is still significant, but not to the point where a slowdown in China would have a major impact on the region.”

Besides economic growth, upcoming events such as the 2016 Olympics in Rio de Janeiro and the 2014 FIFA World Cup are drawing interest from investors. Other notable initiatives include the newly-created Pacific Alliance, designed to open up the market by enabling a “free flow of merchandise, products and services without the existence of tax barriers among other member countries,” Cuevas explained.

Business challenges stepping into, or expanding within, LatAm

The report also notes that new entrants to the region will find immense diversity in terms of language, culture and the way in which business is conducted among individual countries.

Important factors to consider besides the economic environment, according to Ana Diaz, head of the LatAm international subsidiary banking at BoA Merrill, include the political system, the cost of doing business and infrastructure.

As stated in RBC Wealth Management/Capgemini’s World Wealth Report 2013: “Firms that enter new markets without due considerations to local regulations or the availability of legal, compliance, fiduciary, and advisory expertise risk having to exit the market entirely or merge with firms that do have the required expertise.”

Diaz says a firm has a number of options when entering a new market; it could go in as an incorporated legal entity with its own staff, for example, or start with a non-resident entity, with lawyers handling the initial phase.

High net worth industry

Indeed, according to the World Wealth Report 2013, all regions logged growth in the numbers of HNW individuals and wealth, except Latin America, which it said faltered in 2012 amid slower gross domestic product growth and volatile equity markets.

But the region is nonetheless perceived as an important market by many US wealth management firms, who have intensified their focus on serving both clients domiciled in Latin America and LatAm expats in the US and Europe, for example.

Most recently, Deutsche Asset & Wealth Management announced earlier this month that former senior Credit Suisse executive Felipe Godard will join as a managing director and head of wealth management, Latin America, effective October 1 and based in Geneva.

RBC Wealth Management also brought in Juan Pablo Cortes from UBS Wealth Management as a director, Americas, based within the firm’s London-based UK private client wealth management team. Cortes works with internal teams and external advisors to provide wealth management services to LatAm and Iberian high and ultra high net worth clients resident in the UK or overseas.

Other players have expanded their footprint in Latin America by making acquisitions, such as Luxembourg-based Alceda Fund Management, which partnered with Philadelphia-headquartered financial services company AFINA Holdings to identify new investment strategies in the market. Research from AFINA, meanwhile, predicts that assets under management in the region could hit $4 trillion by 2020, with growth rates of around 3.5 per cent.

Click here to view a feature on what wealth managers can expect from the private banking market in Chile.