Report for the Month of November 1999

Morgan Grenfell Lat Amer Co Tst PLC 14 December 1999 REPORT FOR THE MONTH OF NOVEMBER 1999 SUMMARY November was a strong month for Latin American markets, which continued in the more positive tone set by the last two weeks of October. In sterling terms, the MSCI Latin American Free Index rose by 16.02%, outperforming both the MSCI World Index (up 5.94%) and MSCI Emerging Markets Free (up 12.26%) by a wide margin during the month. The largest markets, Mexico and Brazil, led the region with significant gains (up 17.5% and 22.4% respectively). Trading volumes are much improved in the larger markets and we have seen buying by both local and international investors, including some global funds. This was despite a 25bp rise in US interest rates and a pause in the rate- cutting cycle in Brazil. Though the positive trend has continued into early December, we expect markets to be more subdued going into the year end. During November our net asset value rose by 15.15%, just below the rise recorded by the index. However, our share price rose by 16.2%, outperforming the index as the discount narrowed. Overall, our market positioning was correct, but we saw strong moves in some stocks we do not own in Brazil, Chile and Mexico, which held back performance. BRAZIL Brazil's equity market put in a strong performance in November, although uncertainty over the inflationary outlook meant that the COPOM monetary policy committee decided to leave interest rates unchanged at 19% and to move to a neutral from an easing bias. Inflation was higher than expected in November due to some one-off price hikes and seasonal pressures on food prices. The latest figures seem to show that inflationary pressures have eased in early December, as might be expected given the weakness of overall demand in the economy; we are looking for a year-end inflation figure of no more than 8%. Fiscal performance has been on track, and the currency has strengthened albeit with some Central Bank intervention. Local investors were very active buyers of the equity market, with exporters and other selected blue-chips their favourite stocks. During the month we reduced our position in fixed line telecoms company Telesp on concerns over restructuring by its controlling shareholder, Telefonica Internacional ('TISA'). Lack of transparency over TISA's intentions had made the stock underperform in Q399; we reduced our position after it rallied in November. The proceeds were reinvested in our existing holdings. MEXICO As we mentioned last month, the political environment became substantially more stable in Mexico following Francisco Labastida's overwhelming win in the PRI Presidential primary election on 7 November. Defeat was quickly acknowledged by his rival, Roberto Madrazo, who has promised to remain within the PRI, so avoiding a split in the ruling party ahead of next year's Presidential election. Mexico was also boosted by news of stronger than expected Q399 GDP growth of 4.6%, and by indications of better consumer demand. Impressive growth in foreign direct investment (up 10% YOY for the nine months to September 1999) and higher oil prices have kept the peso strong. The equity market rally was spearheaded by the banks and a narrow group of blue chips, including Telmex, but broadened out during the month. We made no changes to the portfolio during the month. ARGENTINA Argentina lagged the rest of the region in November after optimism following the election of President De La Rua became more guarded. The new government has not yet had its 2000 budget approved by Congress, as had been hoped, and has had to do some tough negotiating with provincial governors over spending cuts. During the month, we cut back our weighting in Banco de Galicia, which had performed well, to reflect our view that more profitable investments could be found outside Argentina. One of our holdings, energy conglomerate Perez Companc, announced an exchange offer which was badly received by the market. However, we have remained invested as we believe the new structure will be fair to minority shareholders and reinforces the Perez Companc family's commitment to the business. CHILE The Chilean market rose just under 13% in sterling terms in November; while it underperformed the Latin American regional index this masks strong appreciation in individual stocks, as well as increased interest in the market by foreign investors looking for evidence of economic recovery. Though GDP growth for September was below expectations at 1.1% YOY this was the first positive growth for twelve months; a fall in unemployment and improved export performance also point towards better prospects for the market. It is now clear that since the 12 December Presidential election produced a virtual dead heat for the two major candidates, the contest will go to a second round on 16 January. After my recent visit to Chile, we will be making some changes to our holdings, including those in local stocks, where we think a lifting of capital controls on foreign investment in the first half of next year could benefit the market. ANDEAN MARKETS The Andean markets have received little attention from investors in recent months. Venezuela underperformed the region substantially in November, returning -5.6% in sterling terms despite the rising oil price. Investor concerns are mainly over the implications of the new constitution. We maintain our zero weight in the market, which despite some big gains has been extremely volatile and year to date is now in negative territory. Peru's benchmark stock Telefonica del Peru outperformed the index (+6.6% in sterling) as investors became more positive on the outlook for economic recovery; GDP figures released showed growth of 2.2% in September. Peru's fiscal position has worsened due to the recession and various incentive programmes but the government has announced plans to reduce the deficit to 2% of GDP next year from 2.5% in 1999 and to set legal limits on spending and debt levels. Colombia outperformed in November, up 18.3% in sterling terms; we have a small position in brewer Bavaria which performed strongly. Despite the rally, the Colombian market is still down around 20% year to date. We made no changes to the portfolio in these smaller markets during the month. NET ASSET VALUE Fully diluted 30/11/99 31/10/99 30/11/99 31/10/99 83.6p 72.6p 86.4p 77.3p MID-MARKET SHARE PRICE 30/11/99 31/10/99 Ordinary Shares 64.50p 55.50p Warrants 22.25p 19.75p Market exposure 30/11/99 31/10/99 EQUITIES Argentina 4.5 6.3 Brazil 32.5 32.2 Chile 10.0 9.3 Colombia 0.7 0.7 Mexico 46.2 44.9 Peru 3.7 3.9 Other 1.2 1.3 TOTAL PORTFOLIO 98.8 98.6 Net Current Assets 1.2 1.4 ------ ------- TOTAL 100.0 100.0 ------ ------- Based on total assets less current liabilities of £51.8 million (£45.0 million). GEARING Borrowings and Gearing at 30/11/99 31/10/99 £000's £000's NIL NIL ==== ==== LARGEST HOLDINGS (market value £41.5 million equal to 81.2% of total portfolio) % of Country £000's portfolio Telmex Mexico 6,916 13.5 Tele Norte Leste Brazil 2,416 4.7 Grupo Televisa Mexico 2,329 4.6 Vale do Rio Doce Brazil 2,271 4.4 Tele Centro Sul Brazil 1,980 3.9 Petrobras Brazil 1,784 3.5 Grupo Modelo Mexico 1,761 3.4 Soriana Mexico 1,580 3.1 Banco Itau Brazil 1,534 3.0 Banco de Galicia Argentina 1,483 2.9 Telesp Brazil 1,477 2.9 Cemex Mexico 1,470 2.9 Brahma Brazil 1,437 2.8 Alfa Mexico 1,434 2.8 Telecom de Chile Chile 1,327 2.6 Femsa Mexico 1,296 2.5 Desc Mexico 1,202 2.4 Banamex Mexico 1,077 2.1 Kimberly-Clark Mexico 1,032 2.0 Embratel Brazil 1,026 2.0 Gerdau Brazil 995 1.9 Gissa Mexico 988 1.9 Quinenco Chile 947 1.9 Cementos Lima Peru 907 1.8 Grupo Carso Mexico 851 1.7 For further information, contact Rosie Bichard at Deutsche Investment Trust Managers Limited on 0171-545-6000. For additional copies, changes of address or details of our Private Investors' Plan and low cost ISA contact Mark Pope on 0171-545-0520, e-mail address: mark.pope@db.com Issued by Morgan Grenfell Latin American Companies Trust PLC and approved by Deutsche Investment Trust Managers Limited, regulated by the Investment Management Regulatory Organisation and manager of Morgan Grenfell 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 Morgan Grenfell Latin American Companies Trust PLC presents those risks associated with emerging markets which may at times be illiquid and/or volatile.
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