Forget China, Look To Latin America – Agustino Fontevecchia

With inflation a concern in the Far East, commodity and consumer-driven economies like Brazil and Chile may be 2011’s biggest winners.

Emerging markets are leading the global economic recovery, and that story is unlikely to change in 2011. But while China draws the most attention, tame inflation and growing domestic demand in Latin America makes investments in Brazil, Chile and elsewhere just as likely to deliver strong returns as their Asian counterparts.

“In terms of outright secular trends, Latin America seems to be making strong progress,” says Nick Chamie, chief emerging markets strategist at Royal Bank of Canada. The story in Asia is well understood but inflation threats, which led China to hike benchmark interest rates for the second time in three months on Christmas Day, could tap the brakes on the region’s blockbuster growth.

A research report from Bank of America-Merrill Lynch suggests that accelerating capital inflows, stronger domestic demand and minor risk of inflation mean Latin America could move to the fore in 2011. “Contrary to 2010 when the key focus was on external demand as a source of growth…domestic demand [will] drive growth in 2011,” BofA-Merrill says, considering the tepid growth projected for developed markets that have traditionally been the end consumers for the raw materials produced by the region.