3 Important Elections

Across the globe, three elections with the power to change the 2018 investment landscape are underway. The significance of these elections is such that the ramifications of the outcomes will span not only countries, but entire regions.


To highlight and analyse potential implications, we have constructed a summary for each election, with vital insight provided by our experienced investment team:



What is it? Elections to decide the next legislative assembly of Gujarat, India’s westernmost state with a population of 67 million, equal to that of the entire United Kingdom. It is also Prime Minister Modi’s home state, where he was previously the Chief Minister.

Why is it important? The elections will provide a critical popularity test of the Modi-led BJP government following a period of major reforms. Whilst good in the long term, the reforms, such as demonetization and introduction of Goods and Services Tax, have created some short-term pain and reduced GDP growth.

As Modi’s home state and traditional power-house, it will be poignant to see how the electorate react in Gujarat. Congress-led rival parties are capitalizing on this opportunity to give Modi a ‘bloody nose’ by putting huge resources behind their campaigns.

Impact of outcomes: Modi is highly likely to win the election, but the size of the victory margin will be critical. A poor show may see Modi’s government resort to populist policies to bolster their chances in the 2019 General Election, putting the government’s fiscal targets at risk. A resounding victory would be seen as vindication of the policies implemented already and encourage the government to pursue further bold reforms, rather than chasing short-term vote winners.

Our view: We see the most likely scenario at the Gujarat state elections as a strong showing for the BJP, similarly to Uttar Pradesh earlier in 2016. This outcome would provide a solid base from which to launch the 2019 General Election campaign. Envisaging the Prime Minister’s potential second term, we foresee a similar focus on economic growth through structural reform. This would unlock the secular growth potential offered by India’s demographic and urbanization trends.



What is it? Every 5 years, the African National Congress (ANC) elect their National Executive Committee (NEC). The ANC have been the ruling South African party since the end of Apartheid, and due to the size of their vote, effectively form the country’s new government until the 2019 General Elections. The NEC is composed of the ANC’s top 6 officials, including the President.

Why is it important? For the past 8 years South Africa has suffered from the mismanagement and corruption allegations of current NEC President, Jacob Zuma. The ANC elections will be the first significant opportunity to test whether Zuma’s actions have shifted the internal ANC power base away from him towards more business-friendly and inclusive factions.

Impact of outcomes: A vote in favour of change towards Cyril Ramaphosa and other moderate candidates could shift business confidence and drive market returns. Similar circumstances followed the impeachment of Dilma Rousseff and replacement by Michel Temer in Brazil in 2016. If, however, Zuma’s ex-wife Nkosazana Dlamini-Zuma was to win, we would continue to see a drag on the South African economy with depressed growth and earnings prospects.

Our view: We believe the most probable outcome is a narrow win for Ramaphosa with a compromise slate. Although some Zuma faction elements would remain in the cabinet, this would see the end of the Zuma presidency itself. While Ramaphosa will be limited in his ability to enact wholesale reform, we should however see the creation of positive South African tailwinds in 2018.



What is it? Chilean General Elections are conducted every four years to select the ruling party and President. Current President Michelle Bachelet has overseen a period of socialist driven reforms, including increased corporate taxes and union power which has halted business investment. Front runner and pro-business candidate Sebastien Piñera won 37% of the vote in the first round and will enter a run-off against the incumbent party candidate Alejandro Guillier who polled 24%

Why is it important? The Chilean business community is hungry for calmer economic waters and a more business friendly regime. This shift seems imminent, as the current poll leader Sebastien Pinera would see a move towards the right and therefore a more conducive business environment. Pinera was the President between 2010-2014 during which time investment soared in Chile.

Impact of outcomes: The market is disappointed that Piñera received less than the 42% forecasted by the pre election polls in round 1. Piñera will likely move to the center, keeping his core and capturing part of the votes cast to Goic the centrist party, while Guillier moves more to the left. A win for Piñera should see a boost in confidence, whilst a loss will keep markets and
investment subdued.

Our view: The left is fractured, and therefore unlikely to win the second round. A vote for the left would be supporting the very unpopular policies, which caused both consumer and business confidence to reach multi year lows. The most probable outcome is a resounding Piñera victory, followed by the implementation of steady, if not dramatic, economic reforms. Whilst this will not immediately open the floodgates to investment, it should see investment led growth through infrastructure and mining development as Copper prices soar globally.



3 Years of Alquity LatAm: Stocks

Launched on the 2nd April 2014, Alquity’s Latin America Fund has outperformed 90% of its peers since inception.1  So what has been the secret of its success and what does the future hold for investors in Latin America?

Looking back over the past three years, and forward to the next three, in this blog Roberto Lampl (Head of Latin America Investments), highlights three key stocks in the Alquity Latin America Fund.


The Alquity Latin America Fund is a focused strategy with currently 33 positions across six countries. All our stocks have excellent growth prospects but there are some that we’re particularly excited about.



  • Brazilian manufacturer of industrial machinery with production facilities in Brazil, Mexico, Germany and China.
  • Exceptionally well positioned to benefit from the domestic growth cycle and improving global growth.
  • Over the last 20 years this amazing company has delivered a 17% compound annual growth rate (CAGR) through a combination of organic growth and shrewd acquisitions.
  • We see no reason why this can’t continue as the Brazilian economy recovers.


  • Chilean industrial conglomerate that focuses on forestry and distribution of liquid fuels and the management of convenience stores.
  • The largest market share in their respective businesses in Chile and Colombia.
  • Now the second largest wood panel manufacturer in the world and leading Latin America sawn timber producer, Copec is poised to benefit from both regional and global growth.


  • A 93 year old Peruvian importer, vendor and service provider of equipment for construction, mining, agriculture and transport markets.
  • The firm’s 50%+ market share of heavy equipment machinery and 70-year relationship with Caterpillar puts it in pole position to benefit from the wide array of infrastructure investments in Peru.


3 Years of Alquity LatAm: Themes

Launched on the 2nd April 2014, Alquity’s Latin America Fund has outperformed 90% of its peers since inception.1  So what has been the secret of its success and what does the future hold for investors in Latin America?

Looking back over the past three years, and forward to the next three, in this blog Roberto Lampl (Head of Latin America Investments), evaluates the top three growth trends contributing to the performance of the Alquity Latin America Fund.


Latin America is a diverse and dynamic region, with a population of over 600m people where 50% are under 30. Increasing consumption and urbanisation will continue apace, whatever happens across the global economy or in the US. What, however, are the key cyclical trends that investors need to be aware of?


Economic Reform

From Argentina to Brazil, to Chile and Peru, we are seeing political change, or the prospects for change, leading to market-friendly and growth orientated policies.

2017 sees elections in Chile where the incumbent President Batchelet is likely to be replaced and we hope to see reforms leading to a market rally. We already have over 20% allocated to Chile, which is well ahead of our peers.


Infrastructure-led Growth

2One of the key constraints on growth and productivity in Latin America is infrastructure and this is increasingly recognised by governments across the region.

For example, we are seeing large infrastructure investments being initiated, such as the $5bn Metro 2 train line in Lima, Peru.

Investments are also well underway in Brazil, where a return of business confidence and reducing interest rates are boosting infrastructure projects, leading to an early cycle recovery amongst industrial companies. Through stocks like Mills, engineering products and services, we are well positioned to capture this once is a decade growth opportunity.


Interest Rate Cycle

Countries embarking on interest rate cutting cycles will encourage business investment and hence improved growth prospects.

Uniquely for the region, Brazil, Argentina, Peru, Chile and Colombia are all cutting or intending to cut interest rates, which will feed through into investment and growth. Mexico is the only economy where interest rates are increasing and hence our low allocation.


3 Years of Alquity LatAm: Country Picks

Launched on the 2nd April 2014, Alquity’s Latin America Fund has outperformed 90% of its peers since inception.1  So what has been the secret of its success and what does the future hold for investors in Latin America?

Looking back over the past three years, and forward to the next three, in this blog Roberto Lampl (Head of Latin America Investments), evaluates his key country allocations in the Alquity Latin America Fund.


Over the last three years the fund’s success has been based upon our prescient macroeconomic forecasting. Three countries in particular stand-out for their contrasting fortunes.



In 2014 we anticipated that Brazil would go through a major macroeconomic adjustment due to its overvalued currency, weak terms of trade and rising indebtedness. At the launch of our fund in April that year our allocation to Brazil stood at 12.4% much lower than our benchmarked peers. This protected the fund from the huge draw-downs in 2015 (MSCI Brazil -43.4%, Alquity -13.5%).2

2015 also saw the corruption scandal involving Petrobras, which eventually led to the impeachment of the then President Dilma Roussef in August 2016. Unlike our peers we were not invested in this firm.

Again, we correctly forecasted that the likely impeachment would lead to a new government led by President Temer being more committed to implementing an economic reform agenda the country badly needed. As a consequence, by adding to our Brazilian positions from the end of 2015, we were able to participate in much of the 2016 market rally.

The future for Brazil is encouraging and alongside the economic reforms we see wider growth trends (see our next blog).



Much of our increased Brazilian exposure in 2016 came from reducing our positions in Mexico. Whilst Mexico enjoys a strong weighting in the index, we saw a country facing economic headwinds. Notwithstanding the likelihood of increased protectionism from the Trump administration, we saw the US economy in late cycle and anticipated a slowdown. In addition, we saw demanding valuations, which cautioned us about the prospects for future returns.

Looking forward we see continued challenges for the country over the coming year as pressure to increase interest rates and sustain the Mexican peso increases. However, we still own some excellent Mexican companies deriving revenues from across the region and in the case of Grupo Bimbo, who are the world’s largest producer of baked goods, across the world.



Change is constant and searching for misunderstood investments is a core part of our work as investment managers.

We evaluate government effectiveness and the strength of institutions in each country. We seek the right type of investment to reflect the risk/reward of a country going through positive transformation.

Argentina’s economy was notoriously mismanaged under the presidency of Christina Kirchner. However, we were confident that the change in leadership following elections in October 2015 would result in a significant alteration in economic policy. This has resoundingly proven to be the case with President Macri.

Ahead of all our peers we invested in Pampa Energia, Argentina’s largest electricity generation-distribution-transmission company at the start of 2015. We wanted to capture the normalisation in Argentina’s risk premia and a radical revaluation in the profitability of Pampa’s business. Since investing in the stock in January 2015, it has risen over 500%!3



1 Based upon Citywire Selector 3 year performance ranking 7/105 as at 31 March 2017
2 31 December 2014 to 31 December 2015. Alquity performance refers to USD M Class.
3 Return in USD since initial investment on 15 January 2015 to 24 April 2017.