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Ian Bezek Returns To Talk Argentinian, Chilean, and Colombian Stocks + The Return of Free Markets In Latin America?
00:56:27
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- [00:00]
Ryan Henderson
Foreign.
- [00:05]
Ian Bizek
Welcome to Chitchat Stocks. On this show, hosts Ryan Henderson and Brett Shafer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is not formal advice or recommendation. Now please enjoy this episode.
- [00:33]
Ryan Henderson
Welcome into Chit Chat Stocks, a podcast to help you find your next great investment. Today we have on Ian Bizek from Ian Ian's Insider Corner, our recurring guest and what we call lovingly our Latin American correspondent. We're going to talk about today Argentina, Chile and Colombia, how to invest in these regions, the political developments going on there, why some of the stocks have been doing well, poorly, and what are the investing opportunities and in these regions as well as Latin America as a whole, which has done quite well over the last year or so. But first, Ian, let's talk broadly. How do elections and political developments impact how you invest in Latin America?
- [01:17]
Ian Bizek
Yeah. First of all, thanks for having me back on the show. It's always a pleasure. Looking forward to this discussion. Yeah, I think it's a great introduction question. I was actually looking at some of my old writing and tweets, recently remembered that as early as early 2024, for example, I was calling out the Colombian stocks for kind of making record earnings, record revenues. The underlying economy was doing very well, yet no one wanted to buy those companies. So just off the radar. The government was socialist, so this is just something people aren't looking at. But at the same time, those companies continue to generate shareholder value. They're executing on their business plans. I think an election gives you a catalyst, like it'll be on the front page of the Economist, on the Wall Street Journal, kind of. It's the one time every four years when a hedge fund manager thinks about Colombia or thinks about Brazil or whatnot. So you get kind of a chance to get a RE rating because the numbers have kept changing, the earnings have kept going up, and now you have kind of the world's attention on that market for that, that brief period of time. And that's when you get a lot of the returns from these markets because it's just that one moment of visibility.
- [02:21]
Brett Shafer
Okay, we're going to talk about a few countries here throughout the episode, but let's kick things off with Argentina. Argentina just had their midterm elections and the results were very favorable for Malay's party. What do you think the result means for Argentine stocks and maybe just the economy in general?
- [02:39]
Ian Bizek
Yeah. So Malay was elected in 2023. And there was initially a ton of investor excitement. I think the local index roughly tripled. But some doubts came in earlier this year. People were talking about Argentina running out of money that they would need bailout from the IMF or so on. And ultimately they did get an aid package from the US and so a lot of people had thought that that meant that his, his economic reforms had failed. So that's why these midterm elections that happened last month were so important because they showed that voters still stood behind Malay, were willing to give him more, more opportunity to keep reforming the economy. The GDP numbers have been very good. More than 5% growth this year. He's gotten inflation down from 300% to 25%. Obviously 25% is still way too high, but big step in the right direction, big jump in private sector employment. So yeah, I think the economy is on a good path. A lot more needs to be done. But I'd say I'd give him an A for his efforts so far and it looks like voters agree with that. And then now he's got another couple of years to keep making reforms. Obviously that should be constructive for the stock market and also having the favored trade status with the US You've got kind of the Argentina US Trade deal in a time when the US is putting tariffs on many other competitors that's very beneficial to Argentina for their exports. So yeah, I remain bullish, upbeat on Argentina. Yeah, I think it's going to be a good trade for the next, call.
- [04:06]
Ryan Henderson
It two years, the last few months or maybe just the last few weeks. Just for reference, we're recording this in early November. For anyone listening down the line, there was the election as you mentioned, but there was also a lot of talk about just destabilization with the currency. There was the emergency currency swap that the United States government in there. Questions we had before the show was a lot of the line, you know, from listeners was well, is it, is the recovery in Argentina actually happening? And this is kind of turning into a two parter question, but what was the problem with the currency? And what do you think would be something you're looking for from an investment perspective to be more confident in the currency risk with that market. And then second, is the economy actually doing well or is it just a lot of news?
- [05:03]
Ian Bizek
Yeah, yeah, it's good. Yeah, good question. And yeah, I'll take that in two parts. First on the currency, I think the one pro, the one area where Malay made a mistake was in terms of he tried to keep a peg or at least to closely regulate the exchange rate between the peso and the dollar. And I think he set the rate a little bit too strong in terms of having an overvalued peso. And in doing so a lot of people were deciding to move their money out of pesos into dollars. So you had kind of speculative people betting that the currency was going to get devalued. But I would say that that's divorced from kind of the real strength of the underlying economy. Like that's monetary policy. That's not like the actual GDP was, is doing well. Inflation's come way down. Private sector investment flows are very strong. People say oh the economy is not that good, particularly in Buenos Aires. But he fired like 20% of the government. So that's a lot of state employees that are now looking for work or need to be retrained or. So so obviously you need some time for that to kind of shift. You need to have capitalism long enough for private employers, particularly multinationals to say oh I want to open stores in Argentina, I want to build a branch here, I can do manufacturing here. You don't get that in, in 12 months. So yeah, I think it's a gradual process. Yeah, I think the underlying economy is doing well. If I were him, perfect world. I don't think you set the exchange rate that high. I prefer free floating exchange rates. I do think the peso is a little bit overvalued. Hopefully now that he's won the election he can kind of let that loose a little bit more. I know some of his policy advisors even are urging that. But it's up to him in terms of how he wants to take the currency. But yeah, I think ideal world it should devalue maybe 20% from here. I don't think that undoes like the bull thesis for the, for the stocks.
- [06:54]
Ryan Henderson
And you, you mentioned the fact that you know they had this huge, I forget how to pronounce the old regimes political party, Peronist I think is, is what it's called. They had just a massive amount of government employees and state run stuff. And do you think the fact that Malay's party people aligned with him won big at the recent election despite the fact that all of these workers were fired and maybe disillusioned with, with them because I mean frankly if you lose your job, you're not going to be happy with the party that fired you. Do you think that is a good indicator that Argentina and knock on wood, never say never is finally done with this anti free market stuff?
- [07:40]
Ian Bizek
I think it's too early to declare permanent victory on that front. Argentina's had generally bad governance and economic management since the 1950s. That said, there's a whole decade from think it was 1989-2001 that they had very free market, pro business measures. So that was 12 years where they'd appeared to have finally gotten kind of more on track and then even that ultimately went off the rails once again. I think at the heart of it you have a very, you have a different electorate than the rest of Latin America. Most people are very European in nature and in thinking I've stayed at various people's houses in Argentina and everyone can trace their family tree back to like 1820 in France or in Italy. So it's a very different culture from like Colombia or Mexico or whatnot. So I think there's a lot of sense of like we're different from the rest of Latin America. We deserve kind of European style socialism, Scandinavian style policies. But there's not really the tax base in Argentina to give you the same government benefits that you could get like Sweden. So I'm not sure if voters have really made peace with that fact or they're just so frustrated by the recent 300% hyperinflation that they said we're going to give this libertarian g. So you.
- [08:53]
Brett Shafer
Mentioned on the, on the Argentinian peso potentially being overvalued and part of that is the peg to the US Dollar. What. How would you go about. This might be a complicated question, but how do you go about unwinding a peg to the US Dollar if you are Argentina? Is that like you just kind of bite the bullet and one day your currency drops by 20%. Is it like. Or is there a way to sort of smooth out that process?
- [09:24]
Ian Bizek
Yeah, to be clear, it hasn't been a hard peg. Like there's been some fluctuations since Malay has been in power, but just kind of the, the central bank will, if it starts dropping quickly, the central bank will intervene to smooth it out. And then Malay talks up the value of the peso a lot. Like if you bet against me you're going to lose money, that sort of stuff. So yeah, I think you could just kind of cut, cut back the rhetoric a little bit. And I mean he's a libertarian. He should want the market to set a free clearing price rather than intervening in my view. But no, it's not like, it's like a one to one peg where the next day it would be two to one and everyone loses all their savings. I don't think the pace was like dramatically overvalued. I think you could get there without. I mean it's 1500 now and I think it should be like 1800. So we're not talking like a huge move. Just stop intervening in the market for a few months and I think it would get there on its own.
- [10:17]
Brett Shafer
Okay, let's talk a little more stock specific. One company you've written about several times on your blog is Corporal Corporation American Airports Cap for short. I think most people just call it cap. What do you think a the elections imply for cap and then thoughts on cap generally after this post. Earnings bump.
- [10:44]
Ian Bizek
Yeah, so Malay has been very good for cap, which was to be expected. He formerly was the chief economist for Corporation America, which is the parent company of the airport company. So deregulation was near and dear to him. Since taking office, he's broken up Argentina at a state run airline, as ridiculous as that sounds in the year 2025. But he broke that up. He's let foreign airlines come in to compete. He's let the budget airlines pretty much operate however they want without restriction. So you have far more local competition, lower prices so you get more, more flights obviously and then just. Yeah, more broadly, anything that attracts more foreign capital and particularly more foreign investors from our foreign businessmen coming through to to visit the region. Good for air traffic, good for cargo. Cargo business is up a lot now. That kind of more is going on with the economy. That said, the the company is 55% Argentine airports, 45% outside of Argentina. Other major countries include Italy and Brazil. So there's diversification there. I think people are viewing it as just Argentina because it's trading at a ridiculously low EV to EBITDA multiple compared to peers. It's like is this really that much like historically the Mexican airports trade at like 12, 13 times EBITDA and this is traded at 6 times EBITDA. It's like this really only worth half of what Mexico because Mexico is not a pristine credit. I mean Mexico is more trustworthy than Argentina, but it's hardly the world's most trustworthy country. So does cap deserve to trade at half the multiple of the Mexican airports? I didn't think so. Particularly when you've got assets like in Italy that are worth more. So yeah, I think this has been a business that's been slept on. Now people are starting to wake up to it. Although it's still cheap on an EBITDA earnings basis compared to peers.
- [12:30]
Ryan Henderson
Yeah, and I think, and correct me if I'm wrong, I don't have the number directly in front of me. After the jump, it's closer to 8 times earnings EV to EBITDA. So it still hasn't closed the gap. There's still significant room for those Mexican airports. We had a question and this one is a bit more speculative, but you follow the airport market fairly closely, so you might have a better read on me than on it. Than me. What. And this is a listener question. What countries do you think that CAP corporation should enter next? Or if at all.
- [13:06]
Ian Bizek
That would be like my list of my fantasy list. Like if I'm building a fantasy football team.
- [13:10]
Ryan Henderson
Yeah, sure, yeah. Fantasy list is perfectly fine.
- [13:13]
Ian Bizek
I was going to say I could do that. But how these come about is that generally an airport operator, an airport, a government will say we want to sell this airport because we need money, or they're saying we want to build a new airport, we don't have the money. So we're going, if you build the airport for us, then you can run the concession for it. And so usually it's not like CAP is just going out and saying, we'd like to buy airports in Costa Rica today. That's not usually how it goes. It'll be like, whatever, some country needs liquidity or they need a new Runway or something. So they'll say, hey, private operators, we're going to have an auction. Who wants to bid? And so CAP has been more aggressive in terms of bidding than most of its peers, which is how they have airports in six countries. And from what I understand, they're very close to signing a deal for Montenegro, which would be seven. There's also talk of Iraq, oddly enough. So, yeah, it could be moving to as many as eight countries within the next call it six months. But I don't think anyone would say Montenegro or Iraq would be like our ideal countries to invest in. But the countries that had bids, had bidding processes open for new airports. But yeah, I mean, I like the idea of mostly investing in Latin America. I think you get a better valuation for having some sort of theme, a kind of coherent business plan. But CAPS management appears to be in the mold. If we want to have as many airports as possible, anywhere where we can get double digit IRRs, we'll go there. So I think you just kind of accept that they're going to, whether it's Africa, whether it's the Middle east, they'll go anywhere. Whether airports where they can get like those 15% IRS.
- [14:57]
Ryan Henderson
Yeah. And you'll. We're not going to get into it on this podcast and you Have a lot more details on your newsletter. But the contracts they have, especially in Argentina, seem very attractive from one hedging the currency risk and getting kind of that guaranteed return on invested capital. So it's a good business. I think.
- [15:17]
Ian Bizek
Very briefly to make your point there, the Argentine airports, all their international travelers, they pay US$57, so no Argentine peso risk. And the government has given them a 16% guaranteed IRR on any money they put into. Like they expanded the Buenos Aires airport. I think they spent 150 million on it a few years ago and they get 16% guaranteed return on that investment from the government. So if there's not enough passengers, they get to raise rates or the government has to make good like extending the contract life or in some way giving them that assured return. I spoke to IR a couple of years ago and it's like the question I always get is like, why don't they pay a dividend? And he's like, well, we can reinvest your capital for you at 16%. Like why do you want us to pay a dividend Question.
- [16:02]
Ryan Henderson
Right, yeah, that is. It's quite a good business. I get the last question on cap. We see the stock price up and I'm looking at fiscal AI right now. Total. This is just a price, not even total return. I don't even know if they pay a dividend. It's up close to 800% in the last five years. Done quite well. It's 54% annual return. You've held it for a long time. I think it's been a 10 bagger for you. Or if not close to it, what a lot of people look at is, all right, the stock's close to an all time high. The Argentina thematic stuff. People say it might be running out of legs. We've seen a huge bump from that. What is the upside? Maybe I can ask it differently. How are you looking at the investment over the next few years? Like what would you look for to either buy, sell or add to your position?
- [16:54]
Ian Bizek
Yeah, I mean it's a fair point. I think the day we're recording this, it looks like it's going to trade and close at an all time high. So you can certainly argue the moves already played out. Why not cash out up here? I'd say it's still trading like 7, 8 times EBITDA, so still a considerable discount appears. I think if you went through a competitive bidding process to sell off their airports, you would get, I don't know, between 12 and 15 times EBITDA for the Airports, depending on which country, which asset. So I think this is still selling well below what it would be valued at to any other buyer. The company used to be fairly levered. It's like three times levered during the pandemic. Now it's down to one times leverage. Management has said they actually want more leverage, but they just haven't been able to deploy capital because they lost out on a few bids. I think we'll either see a dividend or buyback or something because management is not. I don't think they're going to just let cash build up forever. So I think you'll see actions to unlock shareholder value and then traffic is actually going the fastest of I believe all the publicly traded airport operators at the moment, they just reported like 15% growth in Argentina last quarter, whereas everyone else is pretty much in the single digits now. So I think the Argentine growth story still has legs. It's their largest business. Yeah. So I think there's still room for it to relatively outperform in the longer term. I'm a bull on global aviation. A ton of emerging market people that consumers that haven't flown or have only flown a couple of times. I think the market can still grow a lot. And so airports in countries like Brazil and Argentina, I think there's still a long Runway for, for more growth.
- [18:33]
Brett Shafer
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- [19:28]
Ian Bizek
They don't say directly. And for Argentina, it's a bit harder to distinguish because Buenos Aires is both the main business airport and the main tourism airport. It's not like in Mexico. You can look at Cancun and Puerto Vallarta to see the tourism traffic and then like Mexico City to see the Business traffic for Argentina? It's harder to say. I'd say I think a lot of the growth is from like I was talking about the new airlines that have come in. There have been a bunch of discount like budget carriers, like carriers from Peru and Colombia and all that have started adding direct flights to Argentina now that they've deregulated. So I think a lot of that is kind of the more price sensitive customers that wouldn't have paid full freight for the state run airline before that are now saying, oh, Argentina is affordable now. Yeah.
- [20:12]
Ryan Henderson
And you can maybe envision a world where what happened in Mexico over the last 10 years with the Valerie's of the world could happen in the Argentina or South. South America region. Or would it be. Has a specific airline shown up or is it one of the existing ones like Valeris that are now operating in the country?
- [20:32]
Ian Bizek
There's one domestic one in Argentina, I think it's called Fly Bondi, but name could be wrong. But then there's one called JetSmart in Chile that's just grown like a weed across Latin America. And obviously Chile and Argentina are neighbors, so that's will be a big growth market for them as well.
- [20:49]
Ryan Henderson
Yeah, it makes perfect sense. All right, let's finish out with Argentina. We've talked about the airport operator, but there's obviously more than just one business in that country. You've written about a lot of different stocks that you've invested along with this thematic recovery within the country. What are some other stocks that are of interest that you followed? Pretty much an open ended question. What other stocks do you want to talk about from Argentina?
- [21:16]
Ian Bizek
Sure. The other names I've been involved in. Where the banks are the banks. I still own them. Just because I think it's the easiest way if you're wanting to make a bet specifically on kind of the politics and just who's the most exposed to good or bad political developments in Argentina? I think the banks, the domestic banks are the clearest play. And so I'd gotten pretty aggressively involved in Groupo Galicia, Tigger Ggal before the election and then after there was kind of the panic in September. I added some call options on that as well. And then obviously that worked out nicely, but I think there's more upside. That stock was trading at 75 in February, like back when Malay was riding high. And then it traded down to 25 in September, which I thought was absurd. It's trading at like 20 before Malay won. So you were only getting like $5 of credit for the, the past two years of economic progress that Malay had made. So everyone had just thrown in the towel. At the midterm elections I was traded back up to like 55, which is good, definite progress. But it was 75 back when people thought Malay was doing well before. Now Malay has a fresh mandate and he has like direct US financial assistance. So I think the banks can trade back to the 52 week highs GGAL to 75. And some of the other, like BBAR for example, that one can go back to 25. I think it's like 16 now. So I think there's still some, some juice on the Argentine bank trades.
- [22:41]
Ryan Henderson
Is there any, any other sectors that you have interest of in Argentina or is it mainly airport operator plus these financial institutions?
- [22:52]
Ian Bizek
There's quite a few Argentine companies listed in New York. So if you like the telecoms or utilities or whatever, I mean there's other names there, but I personally have spent 95% of my attention on the airports and the banks.
- [23:07]
Ryan Henderson
Okay, let's talk a country that may be on its way to having its own Malay show up. You can correct me if I'm wrong in your thoughts here, but it's Chile, the Argentinian neighbor that was recently mentioned here. Let's just kick things off with the current political situation. What do you see on the ground? And I know they actually have part of the election coming up after we record, but before this is released. So you know, give context on that. What's the timeline for the elections and how things are developing politically in that market.
- [23:42]
Ian Bizek
Yeah, so you currently have a left wing government that's been in power since 2021, that President Boric had tied his popularity kind of his fate to a constitutional reform amendment which was supposed to get rid of the Pinochet era constitution and replace it with a more liberal, inclusive constitution. That constitution went to a referendum in front of the voters and the voters rejected it almost 2 to 1. That kind of tanked Boric since he'd established like that was his, his main policy proposal. So his government has not really done much of anything since then. So people have been expecting kind of power to swing back to the right. It's just kind of a question of how far right it would go. Uh, but yeah, now we've gotten to election day. The first, the Chile has a system where unless you get 50% of the vote in the first round, then it goes to the top two candidates and they have a runoff. So the first round is November, no one is going to win in the first round. So then the top two candidates will face off in December, there's a communist who will be one of the two candidates probably because she's the only left wing candidate running. So kind of all the support from anyone left of centers behind her. That said, she's only pulling at like 30% even though the left had a primary to put all of their support behind one candidate. So the betting market says she has virtually no chance of winning, but she will be one of the candidates in the runoff. And then on the right, the most likely candidate. You will already know this by the time you're listening to this, but at the time I'm talking, the most likely candidate is a guy named Cast who is the runner up in 2021. He has family members that were involved in the Pinochet government. He said that they did good stuff, were unfairly maligned. So like very muscular right wing pro business guy. And he said like voters, you got it wrong in 2021, but you've got the second chance to do the right thing, get the country back on track. It's a message that's resonated fairly well. He's been leading guy in the right, then kind of in third place is a guy who's even farther to the right, a libertarian named Kaiser who got a start as a Ron Paul influencer, bringing Ron Paul's message on YouTube to Latin America. And somehow he's been able to springboard this into into national popularity. I watched the presidential debate there. I didn't think he came off as like a polished speaker, really all that charismatic. So I'd be a little bit surprised if he managed to to get the spot in the runoff. But seems like either way the right wing is either going to put up Cast who is pretty far right or a libertarian. So I think either way people are going to be happy from a pro business, pro investor perspective. And Cast has specifically said like that Malay is doing a lot of stuff right and he wants to implement similar style policies and in Chile so you could get a similar trade smaller scope because Julia's economy wasn't nearly as bad. It wasn't starting from such a low point as Argentina, but you could get a similar dynamic in terms of a, a really big change election in Chile.
- [26:45]
Ryan Henderson
Yeah, I was going to ask about the how the local economy is doing. I guess it is a really resource rich country. You have copper and lithium that I don't know what percentage of the economy it is, but it is a large part of it. How like what is the upside left in Chile? I know some of the stocks have done Quite well. How. How are you positioning your portfolio for this election or any sort of post reaction there? Is it playing the banking sector? Is it playing, you know, the copper and lithium and commodity sector? How are you looking at it and how. Where would you invest or what areas are you investing in? In Chile?
- [27:30]
Ian Bizek
Yeah, I primarily own the largest bank, Banco to Chile, bch, not Bitcoin cash, Bank of Chile and also the etf. So ech, which is mostly involved in the domestic economy, but you get some of the copper and lithium exposure there. Actually, I think the largest holding is the lithium company. I'm not involved in any of the mining stocks directly. I think that's a sector that really rewards specialized knowledge rather than as a generalist, something I generally try to steer clear of. It's like mining and biotech and like oil services things I just don't want to deal with myself. More power to people that like those. I think Chile will be very open to business over the next four years for resource investors, but I don't have a strong opinion on those names personally. But obviously a rising tide will lift all boats. As you mentioned, copper is very important to the economy. The state still has a huge profit share kind of arrangement. It gets a ton of the profits from copper in Chile and then it uses that to fund kind of the state budget and a lot of, a lot of investment other sectors. Like Chile is now one of the leading exporters of fish, for example, the salmon industry. And that was all funded like setting that up with state funds that they got from the copper. And so kind of they've used that to try to escape. Was it Dutch disease? Like the idea that you just have all your money come from natural resources and then if that money runs out, like you run into trouble. So I think the state's done a great job of using the copper resources to diversify the economy. So obviously as an investor in Chile, you want copper to keep going up. Love to see it at $5, $6. Yeah, I'm not trading that directly. I think the bank will get plenty more business. There will be more lending to do as there's just more money flowing around the economy in general.
- [29:18]
Ryan Henderson
The. Yeah, it seems very Nordic, I guess in the way they're running it there. And the theme I'm getting Argentina investing in the banks, Chile investing in the bank Colombia. I know that you've invested, I think talked about on this podcast before, Banco de. Was it called Banco Colombia? But I also know that you are interested in Nubank new holdings. So how do you think about that. And I know they're not operating in Chile, Argentina at the moment, but how do you think about those long term versus Nubank? Is it kind of I want both sides of the barbell here, the legacy player and the potential disruptor. How are you looking at that as a shareholder there as well?
- [29:58]
Ian Bizek
No, I think it's a very fair question. From my understanding. Yeah, Nubank is present here in Colombia, not present in Chile and Argentina like you mentioned. Yeah, from, from the user experience I see in Chile, in Colombia, where I live, I see a lot of younger people using Nubank. I guess their average account size is, I don't know, maybe one fifth of the size of the accounts that like Bank Columbia or the other established banks. But I think they'll grow tremendously over time. If your average customer is like 25 or 30, somebody just out of college getting their first job over 10 or 20 years, they're gonna have a lot more spending power. New over time wants to be your brokerage, your life insurance, all that sort of stuff. And so yeah, I think there's a tremendous Runway for new to grow. But I don't think that makes the traditional banks obsolete because most of your capital in a country like Colombia is with the eldest generation. It passes on when people die. And I don't think your eldest generation is moving their money out of Bank Colombia anytime soon. So when you're looking at these banks that are trading like five or six times earnings, like is the durability of this earnings stream well beyond the five or six years that I need to get 100% of my capital back from the earnings? Yes, I think so. Like 20 years from now. Are they losing major market share to new bank and other fintechs? Probably. Is it something I think you need to be worried about over the next election cycle or two? No, I think the banks keep working for if you just want juice to the political trade. Right.
- [31:30]
Ryan Henderson
I mean even the United States SOFI steals deposits, but does bank of America still have a ton of deposits? Yes. And they're still way, way, way larger than that company.
- [31:40]
Ian Bizek
Exactly. Good example.
- [31:42]
Brett Shafer
I guess I have a follow up question here. So when you find a political situation in sort of a new country when you haven't studied as much or whatever, something that you think is like a positive catalyst for the equities in that country, are there specific industries or businesses that you look for first? Is there like sounds like banking's kind of a recurring theme. Are there other industries that you know, are tend to see direct benefits from positive Political developments.
- [32:15]
Ian Bizek
Honestly, I think banks are just kind of easiest because they tend to be listed in New York. They like having access to US Capital, having a credit rating, having people who can see their audited financials. Like banking is a trust industry. And so as a Latin American bank, like saying we've been listed on the New York stock exchange for 25 years, it gives you a lot of credibility that, like if you're a local cement company or a local hardware store or something you don't really care about. So I think some of it's just accessibility. You have listed banks that are liquid, have options, that sort of stuff in New York. Yeah. In cases where I can trade the local market, like Mexico, for example, I look for stuff that's not banks. I don't own any of the Mexican banks at the moment because in that market I've been able to find other stuff that I find more attractive. So, yes, please give us access to the local exchanges in Chile and Colombia and Peru, and I will go pick more off the radar stuff. But for now, I can't really recommend local stocks in Colombia because none of my readers can trade them.
- [33:20]
Ryan Henderson
Yeah. The story you've told on the newsletter about the hurdles you have to go through even as a local to invest in Colombian stocks is quite illuminating on the potential for reforms there. First, we maybe need to lobby to actually open up these markets before people can actually invest in a lot of these companies.
- [33:39]
Brett Shafer
Sorry, I'm. I'm uninformed on this and I didn't read that specific edition of your newsletter. Why can't someone trade stocks listed directly on the Colombian exchange? And like, what are the hurdles?
- [33:55]
Ian Bizek
Yeah. So for now, none of the US or major international retail brokers have direct access to the Colombian exchange. I don't think, like interactive brokers, for example, has access to many local markets, but I don't think they've never added Colombian. My guess is it's. They just don't view it as worth the hassle because they would have to clear Colombian currency. And there's only like a dozen stocks that trade more than a few hundred shares a day in Colombia. So what's. Why would you add the hassle of having to buy and sell and do a depository for another currency where there's such a minimal marketplace. So if you want to trade Colombian stocks and you're not like a hedge fund that can get institutional clearing, then you have to physically come to Columbia and open an account through one of the banks here. And when I did that myself back in 2021. I just went down to a bank, Columbia office, with my wife. We want to open a brokerage account. They're like, are you sure? Like, Colombian stocks only go down. Like, we should open a CD for you. CDs make money. The stocks don't. No, no, we know what we're doing. We're professional investors. They're like, okay, if you want to, but just be careful. So even when you go to the bank, they're like, oh, just get a cd. What's wrong with you if you want to invest in this stock market?
- [35:09]
Brett Shafer
Well, I guess speaking of Colombian stocks, I believe the major, major Colombian ETF is. I'm making sure I get the right ticker here. It's C O L O list.
- [35:24]
Ian Bizek
That's right. Yeah, they changed. It used to be gxg, but it changed to COL over this year.
- [35:29]
Brett Shafer
Okay. It is, according to your latest newsletter, up 132% over the last three years. That might have changed a little bit by the time this comes out. Why are Colombian stocks ripping higher right now? And ironically, probably doing quite a lot better than the CDs that your bank recommended.
- [35:53]
Ian Bizek
Yeah, some of that was just starting from a very depressed valuation between 2013, and I forget if the bottom was 2022 or 2023, but they were down 70% in US dollar terms. And so you get a big drop like that, you tend to get a decent recovery when things turn. More specifically, Columbia elected a socialist president in 2022. He was the first socialist in our modern era. There was a new constitution in 1991 that created, like, the modern democracy in Colombia. And since that point, the government had been conservative for 31 consecutive years. And so it kind of had a reputation for being the most free markets pro, like, tied to the US like the US ally in the region, all that sort of stuff. And so the moment Colombia elected a socialist, everyone was just like, oh, it's over. They're going the way of Maduro or Chavez or Castro or whatever. I talked to so many people in Colombia, okay, fine, we have to buy a house in Spain or buy a house in Miami. Like, it's over for us. Just look at what happened to the poor Venezuelans. And then Petro, President Petro the socialist, took power. And it turned out he's not actually a very competent or effective leader. Like, you're going to have socialists that have lots of charisma and are able to sway people to their. Their way of thinking, you know, or you can have ones who just don't. And so his approval rating almost immediately fell into the 20s. His effort to reform the healthcare system failed. His effort to have much more unions failed, just like all of his major reform efforts failed. And so pretty early on I was telling people like we're going to get through this. Supreme Court's independent, the central bank's independent Congress is against him. I just wait it out. And I think the market's starting to wake up to that. We now have polling that shows the conservatives are doing very well for the elections in May. And like the heir apparent, the successor using air quotes to Petro is polling only 10%. So does not look great for carrying on the socialist legacy here in Colombia. I think once you turn, once you turn the free markets back on, once we Colombia has been the target of several negative Trump tweets and tariff threats and all this year. But once Colombia has a right wing president again, we'll get the same sort of messages that we're getting from LA and Argentina, where Trump loves the Colombian presidency. Again, a lot more free trade. We're one of the few countries in Latin America that remains very loyal to the US We've not tried to cozy up to China, so I think we're well positioned for the current trade environment. We're very close to the US as well. We're in South America, sure, but so pretty short flight from here to Miami, pretty short ship transit for cargo, natural ally to the US in these times when countries are being forced to pick sides, I think the countries like Argentina that have decided to say we're going to be loyal to the US Are getting economic rewards for that. I think Colombia is going to benefit from that next year as well. Sorry, long answer, but hopefully answered your question.
- [38:47]
Ryan Henderson
No, very, very illuminating. What? And you can just say the banks if you want, but what stocks are you looking at in Colombia? And I know there's really only a few, although one grocery store as I remember, that you can actually invest in as a foreign investor.
- [39:05]
Brett Shafer
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- [41:15]
Ian Bizek
Yeah, banks are the most obvious play. Although Echo Patrol, the state run oil company is listed in New York as I think that's going to move a lot. There's the major problem now is that oil is only at $60 a barrel so that's not great. I think that was trading at 25 bucks prior to Petro getting elected. The irony that a guy named Petro is the most anti oil president in South America. But I think once he's gone I think I could patrol probably could double from where it's trading now. So that's something other than the banks. There's also a company that makes glass and solar panels glass primarily for residential condos and offices and so on called Techno Glass. That thing's gotten beaten up over the past year. Just people are worried about new new builds in the us they do most of their sales in Florida and in places where there's like Spanish speaking contractors because they just buy from their friends back here in Colombia. So I think there's been a lot of worry around that with the slowdown in the housing market, kind of the big sell off in Florida real estate price pesos. But I think that one could bounce back as well, particularly if interest rate cuts keep happening.
- [42:26]
Brett Shafer
Okay, let's shift gears a little bit. We've got maybe two more questions and then we had quite a few questions from people on Twitter and substack, so we can ask those as well. But my first one for you, you mentioned earlier on the show that you think the Argentinian peso is a little bit overvalued at the moment. How do you determine whether or not you think a foreign currency is undervalued or overvalued before investing? And I guess how much do you think about that prior to investing in a foreign market?
- [43:00]
Ian Bizek
Yeah, so to say I'm only speaking about Latin America here, not speaking about other developed markets. Like it's, I don't really understand how like the Japanese yen or Swiss franc or those sorts of currencies are priced because they're like developed markets with very different fundamentals. For Latin America. I mostly think of it through the eyes of a tourist or someone who live in a country like how much is my rent? How much are Ubers? How much does day to day life stuff cost? How much would a car cost if I want to buy a car here? How much would a television cost if I wanted to here? Because that stuff should be fairly similarly priced throughout most of Latin America. At least the more developed countries like Mexico, Brazil, Argentina, Chile, all fairly similar levels of like human development, so on. And so like one of these countries is much more expensive than the other. It's usually because their currency is overvalued or similarly, if they're way cheaper than the others, their currency is undervalued. It's like whenever I, I guess it's gone up a little bit since the pandemic. But like Iron Rule was like any like normal working class restaurant I went to anywhere in Latin America for like the last 10 years, a beer would be a dollar. It like did not matter the country. So if a beer was 50 cents or a beer was $2, it was like something off with either that restaurant or the local economy. Same like budget hotels should be like 25 or $30. And that's pretty true wherever I was going. And so you just get a sense of like these prices seem normal, high Low. So, like, Argentina was way cheaper than everyone else under the prior government. I think that's why so many people on Twitter went there. They're like, this is amazing. Like, they eat all their steak dinners and all. Now they're like, $25 steak dinners. What's going on? It's like, oh, well, the peso is overvalued. So you can just pretty quickly get a gut check for how things are valued. Just thinking through it as from a consumer standpoint, because at the end of the day, the incomes tend to be fairly similar for most of these countries. Everyone sets their minimum wages fairly competitively with each other and so on. How do I think about currency from an investing standpoint over time? I think investors tend to worry about it too much, particularly the people that are playing the quarterly earnings game. Like, I don't care if my company beats or misses earnings by 2% because the dollar fluctuated over time. That stuff tends to wash out. I would point out the. Back when Trump first got elected in 2016, the Mexican peso was trading at 20 to the dollar. It's trading at 20 to the dollar today. More of it, give or take 5%. There's been no move in that currency in 10 years. I think the first time I traveled in Peru, it was three and a half to one. And now it's like 3.8 to one. The Colombian peso was, what, 3,000 when I moved here, and now it's 3,700. So only 20% depreciation over eight years. End of the day, not huge moves anymore. None of these countries have super high inflation. But the exception of Argentina, which is kind of its own special child.
- [45:55]
Ryan Henderson
But, yeah, there is that. Yeah. As long as, like, what are the only two unique economies out there that people can't really understand are Japan and Argentina. They don't.
- [46:07]
Ian Bizek
Yeah.
- [46:07]
Ryan Henderson
They're their own separate cases that seem to have just very unique circumstances, I think.
- [46:14]
Ian Bizek
But, yeah, I was just. To finish that point, I was just gonna say, I think. I think people are used to, like, the 1980s, 1990s, when these countries would perpetually be running, like, 20 inflation, and you'd be constantly losing all your money due to depreciation. But that's not the. I mean, Mexico's averaged a 4% inflation rate over the past decade. Colombia's averaged a 5% inflation rate over the next decade. Is there like a smidge higher than the U.S. yes, but is it enough to lose sleep over? Not really.
- [46:37]
Ryan Henderson
Okay. And let's. I guess the listener would maybe have the Question, what's the problem for Argentina's economy as a whole if their currency is quote unquote overvalued? Like how does that hurt? Does it lead to inflation or is the opposite going to lead to inflation? Does it keep people from investing in manufacturing in the country? What is the issue if you're in currency is overvalued.
- [47:07]
Ian Bizek
Okay, so two issues. The reason why Malay wants the currency to be stronger is he wants to bring down inflation. And so if you maintain a stronger currency, that means your imports will be cheaper. Like if you let your currency devalue, then you have to pay more of your local money to buy, I don't know, whatever you can't make in Argentina. So like iPhones or whatever. So you would see higher inflation if you let the currency devalue. And his whole campaign has been I'm going to fix inflation. Like the previous government caused 300% inflation and under my rule there will be no more inflation. So I think he moved too aggressively with like kind of the exchange rate, quasi peg and so on to try to claim 0% inflation now, whereas you're not going to get from 300% inflation to 0% inflation in a year. So I think you can get there over three or four years but take a more gradual approach. But yeah, if he leaves the peso being overvalued, then people are going to keep converting their savings from pesos to dollars, which puts pressure on the treasury and leads to where the US had to give Argentina a swap line also causes problems for your farmers, ranchers, miners and so on because they're competing against other countries that have a fairly valued currency. This is actually what undid the Argentine quote unquote economic revolution in the 1990s. Because Brazil next door went bankrupt in 1999, they massively devalued their currency. And so and Argentina and Brazil both export like iron ore, they both export copper, they both export cattle like it's soybeans, it's like the same export list. And so when Brazil went bust and then devalued like 50%, Argentina was hanging onto their one to one peg against the US dollar. Like suddenly Argentina was 50% more expensive than Brazil. That's ultimately what caused Argentina to fail, is just their exporters couldn't sell anymore. So yeah, I would urge Malay to try to find a stable exchange rate, but one that more accurately reflects the currency's value.
- [49:02]
Ryan Henderson
Okay, this question was from Twitter. I'm going to tweak it a little bit. The question was which Latin American country turns Right. Where next I'm going to change it to which Latin American country do you think turns more business friendly and investor friendly next? I know that might correlate with right wing, but from an investor perspective, that's what we care about.
- [49:22]
Ian Bizek
I mean, if we're looking at the calendar of elections, Chile comes before Colombia, so Chile has to be the right answer. I think if I were assigning betting odds, I would say like 80% odds that both Chile and Colombia go to the right with their next election. But Chile will settle their presidency in December and Colombia's will be May or June, depending on if Colombia goes to a runoff. Also in the running, Peru votes next year, next April, I think. I have no idea who's going to win that. They just, they just got rid of their president like a couple weeks ago and, and replaced them with an interim that countries. I think they've had seven presidents over the last decade. So anyone's guess what happens there? So maybe it goes rightward, but I mean it was already kind of in the center now. So I have no strong view on Peru. Then Brazil. I'd say that's like 50, 50 coin flip on whether that goes back to the right next year or not. There's probably some smaller countries I'm forgetting, but I, I really only pay attention to the investable ones. So like if you want an honorable mention for Bolivia, I know they just elected a conservative, but you're not investing in Bolivia anyway, so not really relevant to this podcast.
- [50:32]
Ryan Henderson
Yeah. All right, big picture question. And I think this is less on like investable theme right now of more and more of. Okay, if I'm listening to this podcast, should I be trying to learn more about this market? And the question is, does the idea that South America goes full capitalist as opposed to all the socialist stuff that was trending five, 10 years ago, do you think that has legs and has more momentum now that Malay and some of these other things are happening?
- [51:09]
Ian Bizek
Yeah, it's an interesting question. You can make an argument either way. I would say that Bukele was actually the first kind of sign that something different was happening where you have this very young, very charismatic right wing guy get elected in El Salvador and they went from being one of the highest crime countries in the entire world to now being, I think the lowest homicide rate in the Western hemisphere, at least very close. I know they're below the US and Canada and so a lot of people have copied like Bukele style, like we need to put more people in jail, have more, more police budgets Less tolerance for crime. So, so that sort of like right wing governance in terms of crime and kind of social stuff that is spread throughout the region, I think that's probably not going anywhere. But from like the economic, like are we going to have like Austrian economics and libertarians getting elected everywhere? I kind of doubt it. I think a lot of the right wing tide was just a kind of coincidence that it was mostly left wingers in power when the pandemic happened. And then throughout the world you had kind of a rejection of everyone who was in power during the pandemic. So I think that's kind of played well just in terms of how the timings went. And to be frank, just with the commodity prices being down throughout the 2000 and tens, a lot of the economies here were pretty crummy. So like copper was down, gold was down, oil was down. So all these right wing presidents who just said like, let us export our commodities and we'll reinvest the proceeds and infrastructure and all to give you a better economy. Like that model didn't work in the 2010s and it's starting to work now that commodity prices have gone up a lot. But unless, like Chile, unless you can reinvest those into other industries and create a more sustainable model, we're still at the mercy of commodity prices crisis. If there's another global bust, maybe the, the right wing moment goes away. So I mean I'm optimistic for where we are now and I think some of the stuff, like some of the more tough on crime policing stuff, I think that probably holds, but I'm not sure. I don't think we're getting like Malay style libertarians, like running Latin America for the next 20 years. That's probably too optimistic.
- [53:11]
Ryan Henderson
Okay, yeah, that's probably a good middle ground there. Even, even if the dream of, you know, the libertarian dream of South America doesn't happen, if you look at United States valuations versus Latin America, it seems like there are some interesting opportunities. If you can't find, you know, if you're sick of the S&P 500 trading at 30 times earnings and you don't want to be chasing the latest AI name, there is some interesting stuff down there. And that leads me to, as we close out here. Thank Ian, thank you for joining us again. Talk about some of the stuff you cover at Ian's Insider Corner and what type of investor professional should subscribe?
- [53:53]
Ian Bizek
Yeah, so it's my personal newsletter, which means it's not like, it's not just focused on like one sector, it's not a professional thing targeting like just Latin American stocks or just banks or whatever. Whatever I find interesting where I think we can make money. So a lot of times I do Latin America, particularly now because Latin America has been cheap and the US Is expensive. But I mean, full disclosure, I think half my portfolio is still in the US I like US Companies always looking for opportunities there. I like trying to invest in quality businesses wherever I can find them. Fingers crossed we'll get a correction in the US at some point. I'd love to invest more money in the US So many great businesses in the US but just not great valuations there. But yeah, I'm a professional investor. I opened a brokerage account the day I turned 18. This has been my favorite hobby pretty much all my life. Always looking for wherever I can make money. Anywhere, any sector. Just about. Yeah. And so I think my newsletter is very interesting for other professional investors that are just open to off the beaten path ideas. One week that is going to be in Columbia. The next week, I don't know, it's the US Whatever. Some weeks it might even be Europe. Kind of all over the place. Yeah. And I love reader comments questions. We have very active discussions. So if you're looking at stuff, I'm always happy to bounce ideas off people as well. All right.
- [55:21]
Ryan Henderson
Yeah. And I'll give praise to the newsletter to help me understand the Mexican airport operators and help me, hey, make money investing in those. So if you're interested in that type of stuff. And again, all the, well, what do I say? Stuff not covered on cnbc, some, you know, some hidden assets, some other countries you might not be interested. Ian covers them quite well. Ian, thank you once again for joining. This is a pleasure. Anyone that has any more questions about Latin America stocks, definitely reach out to Ian on Twitter or what have you or follow his newsletter. But let me hit the disclosure and we can get out of here. We are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan I or any podcast guest may hold securities discussed in this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you everyone for tuning in once again and we'll see you next time.