US Hedge Funds Consider Latin American Alternatives to China

China’s geopolitical tensions and the ongoing turmoil in its property sector are prompting US hedge funds to explore alternative investment options in Latin America.  

As China’s position as the US’s top trading partner weakens, US hedge funds are redirecting their investment focus toward Latin American countries, particularly Mexico and Ecuador. Trade disputes, nearshoring and supply chain issues have all underscored Mexico’s appeal as a viable destination for investments in various sectors, including infrastructure, automobiles and technology components like computer parts and microchips. 

Robert Citrone, Founder, Discovery Capital Management,  tells Reuters that certain emerging markets in Latin America are becoming more attractive, adding that Argentina, Ecuador and Mexico possess short-term catalysts that set them apart from others across the world. Hedge funds are considering potential investment opportunities in Mexico's telecommunications and cement companies, he adds, alongside considerations for currency and rates. In Argentina, Citrone favors energy companies, while in Ecuador, he sees potential in sovereign dollar debt.

China’s economic development has faced challenges during the year, including less effective economic support policies and real estate defaults impacting household wealth. Meanwhile, Latin American countries have shown resilience. According to Moody’s, during the first half of the year, retail sales in China peaked in February at almost 4% growth but by July, they fell by  0.1%. Industrial production contracted by 0.8% and investments went down from 5% to 3.4%. 

Meanwhile, Mexico’s GDP has grown by 3.3%, Peru has recorded 1.3% growth with a projected 3% for 2024 and Argentina is poised to recover from  -2.5% to -3.5%, according to Moody’s Investors Service.