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From Pierre Lavaud, Jetfin: Funds investing in Latin America – mostly based in Brazil – enjoyed outstanding results between 2002 and 2004. Although the environment seems more difficult in 2005, the fundamentals appear sound and longer-term prospects are excellent.

The primary reasons for this success are macro-economic. The politico-economic background has stabilised since the Argentine crisis of 2001. Despite the recent problems encountered by the governing Workers Party in Brazil and the significantly weakened position of president Lula, the hyperinflation of the 1990s seems to be gone for good. The Brazilian banking sector in particular has been bolstered and consolidated, permitting a reduction in leverage and therefore in systemic risk to the financial system. A further contribution toward stability stems from the trend toward lower interest rates.

An additional positive factor is the quality of the Latin American and especially Brazilian financial markets. Latin America’s capital markets offer good liquidity as well as a level of volatility that is advantageous to hedge funds, and the same applies to the spot and forward forex markets. Large cap stocks are very liquid, especially those Brazilian shares traded on US markets as ADRs. As for derivatives markets, certain contracts such as local interest rates traded on the Brazilian Mercantile & Futures Exchange in São Paulo are among the most liquid instruments in the world. On a global scale, volatility is high, a......................

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