Wednesday, 14 February 2018 | MYT 12:00 AM
High risks in the LAC market
PERSONALLY, in my various encounters with the Employees Provident Fund (EPF), I have never had any complaints. My contributions started in the late 70s and my first face-to-face encounter with EPF was about 10 years later to withdraw money for a house purchase deposit. My last dealing was about a year ago and EPF has improved so much by applying technology and the staff is as friendly as ever. I must say EPF is one of the best, if not the best, government institutions in our beloved country.
Reading the latest news on EPF, I noted that it is looking at investment opportunities in Latin America this year. It seems that conditions for investing in foreign markets are improving, boosted by a strengthening ringgit.
Last year’s above-par performance was partly due to the diversification into global assets in various countries which enabled EPF to realise sizeable gains from different markets and asset classes. I hope the decision to look at Latin America is not buoyed or influenced by the said performance.
An article from the World Economic Forum in March 2017, “What are the top risks to doing business in Latin America?”, started with “Failure of national governance”, “unemployment” and “fiscal crises” all prominently cited as risks by Latin American and Caribbean (LAC) business executives. It sure shed some light on the anxieties experienced by people throughout the region.
Numerous political and business corruption scandals, corporate governance issues and the seemingly complete breakdown of national governance are examples of regional environments that present as high-risk scenarios. In short, the concerns are fundamental political and economic structural risks and a lack of confidence in the state.
These concerns were supported by a year of negative GDP growth with large falls in Brazil and Venezuela. The region was also affected by the slide in commodity prices and foreign exchange volatility in 2016. In the 2015 Global Risks Report, profound social instability was ranked as the biggest risk facing LAC in terms of how well prepared the region was.
Using the usual factors in analysing international investment (political, economic, social, technological, legal and environmental), the social negativities represent fundamental risks to any foreign investor.
The International Monetary Fund in its Regional Economic Outlook Update for LAC states that LAC remains on track to recover gradually in 2017–18 as the global economy gathers steam. Long-term growth, however, remains weak, hampering income convergence towards advanced economy levels and fiscal space to support demand is limited. Venezuela’s economy is expected to remain in a deep crisis.
Given the above, my two-sen advice is to be careful and wary of the above circumstances before any concrete decision is made to invest in Latin America.
With due respect to the investment panel, I trust EPF will uphold the sound corporate governance framework it has been practising and in line with its role to protect members’ retirement savings.
A large portion of the population depends on EPF to achieve a better future, especially in an environment of cost that is forever spiralling upward.