Latin stock rally still has legs, despite boom

By Herbert Lash

NEW YORK (Reuters) - A three-year rally in Latin American stocks has led to worries of an overheated market, but a look at corporate balance sheets and the health of regional governments should allay most fears, money managers say.

Latin America has been the best-performing asset class in stocks for the past three years -- funds returned more than an annual 60 percent during the period -- and jumped out of the gates early this year, causing investor heartburn.

Underlying that apprehension are memories of the region's long bouts with boom and bust cycles and the severity of the last crash a decade ago, when its contagion spread beyond Latin America and roiled Asian markets.

But money managers and others at the Reuters Latin America Investment Summit this week say the causes of the tequila crisis a decade ago have largely been resolved, as governments turned fiscally prudent and most enjoy current account surpluses.

"We've come from three very strong years and that strong relative outperformance I don't think will continue," said Gonzalo Pangaro, manager of the $1.65 billion Latin America Fund PRLAX.O at T. Rowe Price Group Inc. (TROW.O: Quote, Profile, Research, Stock Buzz)

"But I still think that Latin American markets look good and will keep on outperforming other emerging market regions."

Investors worried about the past are failing to see that companies are poised to grow and are investing to improve the bottom line. No longer are they engaged in "empire building" or carelessly spending money, said Scott Piper, who co-manages about $2.3 billion in Latin America assets for Morgan Stanley.

"These corporations are generating higher profitability over time and they're doing so because they're getting better management teams that are reinvesting their capital more wisely," Piper said on the margins of the summit.  Continued...