Monthly Report

Deutsche Latin American Cos Tst PLC 17 October 2002 Deutsche Latin American Companies Trust REPORT FOR THE MONTH OF SEPTEMBER 2002 SUMMARY The MSCI Latin American Free Index fell 19.6% in sterling terms in September, led down by the 31.4% Brazilian MSCI collapse as the currency weakened sharply on continued gains by Presidential candidate Lula, heading into the 6 October first round election. Mexico fell 12.5%, although it outperformed the region, on continued weak U.S. economic data and weak global market performance. Six of the seven major Latin currencies reached their lowest level of the year, the exception being the Argentine peso. Argentina held up well, down only 4.5% for the month, on relative currency strength and economic indicators signalling that a bottom may be near. Chile, in contrast, fell sharply, down by nearly 15% as the Chilean peso continued to weaken (down approximately 5% for the month) on negative copper and oil price moves and negative news in the Southern Cone. The Trust fell in line with the index, down 20.0%, primarily due to our holdings in Brazil, which had been added to earlier in the month. Taking advantage of the line of credit, the manager added to positions in the defensive dollar exporters and fixed line telephone companies, but all equities were hurt by the decline in the real. For the year to date, through 30 September, the Trust is down by 38.1% versus the index of -41.8%. The overweight Mexico position plus selective stock picking contributed positively during the month, as did stock selection in Brazil, namely the overweight position in CVRD and Aracruz. BRAZIL The equity market nearly collapsed in September, as candidate Lula's chances improved and speculation mounted as to his victory in the first round. This, in addition to an increase in global risk aversion took the currency down to an all-time low, losing over 20% in sterling for the month. Country debt spreads rose above the 2300 bps level again. On the economic front, the news was more positive: the trade balance continues to improve with the decline in the currency and the country posted a current account surplus of US 300 million for the month, the first since 1994. Economic growth remains anaemic, however, due to continued high interest rates and figures for second quarter GDP were below expectations (under 1% year on year). The Central Bank kept rates unchanged and moved to a neutral bias. All eyes are focussed on the outcome of the second round scheduled for 27 October and the details on economic policy and key members of the incoming administration. Of concern are the rising inflation expectations and continuing pressure on the currency, both of which are detrimental to equity performance. The Trust's Brazil weight is now slightly below the index with the concentration of holdings in defensive names. MEXICO The Mexican market was not spared by the equity market turmoil, and the market fell by over 12% for the month. The Peso broke the psychological barrier of 10 to the US dollar, its weakest level since early 1999. The Central Bank tightened its monetary policy by increasing the corto, halting the peso's slide. The market remained at the mercy of continued weak data out of the U.S. and the falling global equity valuations, particularly in the telco, media and consumer sectors. While economic news was light, the political front became ugly as President Fox faced a stand-off with Pemex union leaders over wage negotiations which weighed negatively on the equity market. This was resolved in the government's favour at the end of the month, signalling renewed support for Fox and his agenda. The lack of major negative news in Mexico has worked in its favour, and the Trust remains largely overweight the market on the expectation that Mexico will be the first to recover when the U.S. market rebounds. ARGENTINA The market outperformed, closing down 4.5% for the month. The currency remained relatively stable, down 2.9%, with economic activity indicators and inflation coming in slightly better than expectations. The IMF rolled over upcoming maturities, which also gave the market a boost. Political risk remains high, however, and will be until the March 2003 presidential elections. The Trust continues to avoid exposure to this market on the basis of better opportunities with less risk elsewhere. CHILE The Chilean market fell by nearly 15% in sterling in September, driven by currency weakness, succumbing to a combination of weak copper and pulp prices, high oil prices and falling growth expectations. Inflation came in above expectations mainly due to the higher price of oil; economic activity continues to disappoint, company earnings expectations were lowered again, and employment remains high. The market has also been plagued by events in Argentina and Brazil where many Chilean corporates have major exposure. The Trust has reduced substantially its weighting in Chile and at under 3% is significantly underweight the index (9.27%). PERU The Trust's sole holding in Peru is the mining venture Buenaventura, which was down 19% for the month, failing to respond to higher gold prices. While overall economic growth is coming in a little stronger than expected, export and fiscal data remains weak and the political situation as fragile as ever. At this time, there is little reason to own anything other than a low cost gold producer in this peripheral market. NET ASSET VALUE Fully diluted 30/09/02 31/08/02 30/09/02 31/08/02 49.9p 62.4p 60.5p 70.4p MID-MARKET SHARE PRICE 30/09/02 31/08/02 Ordinary Shares 41.50p 51.00p Warrants 9.00p 9.50p NAV based on total assets less current liabilities of £23.9 million (£29.8 million). Market exposure 30/09/02 31/08/02 % % EQUITIES Brazil 37.0 40.7 Chile 3.5 2.7 Mexico 52.2 46.8 Peru 2.5 1.5 TOTAL PORTFOLIO 95.2 91.7 Net Current Assets 4.8 8.3 -------- -------- TOTAL 100.0 100.0 -------- -------- Based on total assets of £27.0 million (£33.1 million). GEARING Gearing at 30/09/02 31/08/02 13.3% 10.8% ==== ==== LARGEST HOLDINGS (market value £25.1 million equal to 97.6% of total portfolio) Country £000's % of portfolio Telmex Mexico 3,276 12.7 Wal-Mart de Mexico Mexico 2,388 9.3 Vale do Rio Doce Brazil 2,190 8.5 Petrobras Brazil 1,689 6.6 Cemex Mexico 1,619 6.3 Grupo Modelo Mexico 1,408 5.5 G.F BBVA-Bancomer Mexico 1,220 4.7 America Movil Mexico 991 3.8 Brasil Telecom Brazil 891 3.5 Ambev Brazil 890 3.5 Banco Itau Brazil 863 3.3 Coca-Cola Femsa Mexico 798 3.1 Grupo Televisa Mexico 758 2.9 Femsa Mexico 723 2.8 Tele Norte Leste Brazil 712 2.8 Aracruz Celulose Brazil 706 2.7 Minas Buenaventura Peru 680 2.6 Gerdau Brazil 586 2.3 Pao de Acucar Brazil 575 2.2 Kimberly-Clark de Mexico Mexico 433 1.7 Bco Bradesco Brazil 427 1.7 Embraer Brazil 381 1.5 Telecom de Chile Chile 338 1.3 Gissa Mexico 300 1.2 Bco Santander Chile 282 1.1 FINANCIAL CALENDAR Half year results announced 21 October 2002 For further information, contact Mark Pope at Deutsche Investment Trust Managers Limited on 020-7545-0520. For additional copies, changes of address or details of our Private Investors' Plan, low cost ISA and Dividend Reinvestment Scheme (a recently established scheme through which shareholders, who hold their shares on the Company's main register, can use their dividends to purchase further shares) contact Mark Pope on 020-7545-0520, e-mail address: mark.pope@db.com. Further details of Deutsche Latin American Companies Trust including the latest annual, interim and monthly reports can be found on the Deutsche Asset Management website located at www.deutsche-its.co.uk. Issued by Deutsche Latin American Companies Trust PLC and approved by Deutsche Investment Trust Managers Limited, regulated by the Financial Services Authority and manager of Deutsche Latin American Companies Trust PLC. Investors should be aware that past performance is not necessarily a guide to future returns, values can fall as well as rise and investors may not get back the amount they invested. Fluctuations in exchange rates may also affect the value of your investment. Investment in Deutsche Latin American Companies Trust PLC presents those risks associated with emerging markets which may at times be illiquid and/ or volatile. This information is provided by RNS The company news service from the London Stock Exchange
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