Argentina’s Government Defaults…

By Lee Bellinger / September 30, 2014

…But Region’s Rich Agricultural Resources Haven’t Been Downgraded

This summer, the government of Argentina defaulted on some of its bonds after a U.S. judge essentially threatened to banish Argentina from the banking system. Defaults and hyperinflations are reoccurring cycles in the South American country.

Argentina’s government is hopelessly dysfunctional, like most on the continent. But in many ways that’s preferable to an evil government that is highly efficient.

We don’t recommend you load up the boat on Argentine debt or Argentine pesos. But some real assets that happen to be in Argentina, such as farmland, are looking more attractive now than before the latest debt crisis.

Cresud Inc. (CRESY) is an Argentina-based company that operates farms and cattle ranches in South America. Its stock has been relatively unscathed by the government being forced into default.

Cresud owns properties in multiple countries. It also exports to China. China’s enormous, increasingly urbanized population will be a steady source of
demand for South American agricultural products. CRESY currently pays a 3.2% annual dividend, making it an attractive candidate for investors who want both income and exposure to land and agricultural assets.

Latin American agricultural producers could be a beneficiary of the sanctions war between Russia and the United States. Russia will turn to places like Brazil for food needs now that Vladimir Putin has banned food imports from the U.S. and other allied suppliers.

Investors who want to play a possible boost to South American economies should consider iShares Latin America 40 (ILF). The $1.2 billion ETF holds stocks in large capitalization companies from Mexico to Chile, with 55% of assets being allocated to resource-rich Brazil.