Richard Prosser

The increase in NAV compares favourably with the company’s benchmark, the Composite MSCI EM Latin American 10/40 Index/JP Morgan GBI-EM Global Diversified Index (Latin America carve out) (sterling adjusted) increase of 5.8%

The company’s share price also increased by 13.9% over this six-month timeframe and the current level of dividend has been maintained: a second interim dividend of 0.875 pence per Ordinary share has been declared (2020: 0.875p).

Latin American equities rose in the six months under review. Initially, share prices fell in tandem with global markets amid concerns of a decelerating global economy. Among the litany of woes were a sell-off in tech stocks, the falling oil price, lingering US-China tensions and a surge in COVID-19 cases worldwide.

Over the period, Latin American debt markets retreated with local currency bonds posting negative returns, while Latin American currencies depreciated (in aggregate) against Sterling. Towards the calendar year end Latin American equity markets rebounded sharply as positive news about multiple successful vaccines trials and their subsequent rollout fuelled hopes that a global economic turnaround would come sooner rather than later. Better economic data lent strength to the optimism.

Also bolstering market sentiment was Joe Biden’s victory in the US presidential election, as well as the proposed US$1.9 trillion stimulus package announced which supported global markets. The upbeat mood buoyed sectors that had been hit the hardest by the pandemic amid a value-rotation trade. Conversely, technology and internet growth sector stocks lagged.

The rally proved short-lived, however, with stock prices falling again in the new year. A spike in infection rates worldwide triggered another round of lockdowns. Adding to the regional benchmark’s slide was Brazilian President Jair Bolsonaro’s move to replace the chief executive of Petrobras, Roberto Castello Branco, with a former army general, following a double-digit increase in gasoline and diesel prices.

Rising bond yields and escalating inflation also contributed to the retreat in equity markets. However, the benchmark hung onto much of its earlier gains to close the period higher, helped in part by the sustained rise in commodity prices.

Against this really volatile backdrop, the company outperformed its benchmark over the half year, with its net asset value rising by 7.2% in sterling total return terms, whereas the share price total return registered a gain of 13.9%. In comparison, the composite benchmark rose by 5.8%.

The board has declared a second interim dividend of 0.875 pence per Ordinary share (2020: 0.875p) in respect of the year ending 31 August 2021 payable on 28 May 2021 to Ordinary shareholders on the register at close of business on 14 May 2021 (ex-dividend date 13 May 2021).

The current level of dividend has been maintained, supplemented by revenue reserves, despite the weakening of Latin American currencies against sterling predominantly due to the impact of the Covid-19 pandemic and the continuing economic effects on the company’s equity investments, many of which have scaled back their distributions to conserve cash where possible through lockdowns. This has meant that the sterling income receipts of the company have been reduced.

It is the directors’ current intention to utilise revenue reserves to maintain the interim payments at the same level for the year ending 31 August 2021.

Richard Prosser, chairman of Aberdeen Latin American Income Fund Limited, said: “Several risks continue to cloud the outlook for Latin America. Nonetheless, there are certainly reasons to be optimistic at this point. The projected rebound in global growth should prove supportive for the trade and commodity-linked economies across the region. Another point worth noting is that Latin American stocks were relative laggards across the broader emerging market asset class pick-up in 2020. Therefore, equity valuations look attractive to the Manager, especially if corporate earnings recover concurrently.

“Looking longer term, the company’s manager and I remain excited by Latin America’s appeal as an investment destination, given the region’s huge potential. Pandemic-induced shifts, such as increased digitalisation, are likely to endure, alongside other structural growth drivers, including rising consumption and demand for services and infrastructure. The holdings in the company’s portfolio are plugged in to many of these trends helped by the Manager’s recent purchases.

“Furthermore, these businesses have the qualities, in terms of well-established franchises, sound financials and experienced management, that set them apart from other rivals. All these points help to ensure that the company is both resilient amid the present challenges and also well-positioned for a post-Covid-19 world.”