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Aberdeen Asset Management

The Happiness Factor of Investing

There’s more than coffee brewing in Latin America, and that’s happiness. But why should emotions matter to investors, especially when they are often told to put aside emotions when it comes to long-term investing?

At its core, happiness measures can reveal the fundamental health of a country. In investing, strong fundamentals signal a more sustainable long-term asset. For investors looking to diversify into emerging markets, high levels of happiness across much of Latin America are worthy of more than a quick glance.

Latin American countries filled the top 10 in Gallup’s recent poll to find the world’s happiest people. This included Paraguay, Colombia, Ecuador, Guatemala, Honduras, Panama, Venezuela, Costa Rica, El Salvador and Nicaragua.

In a separate study, Costa Rica was part of the top 15 in the United Nation’s (UN) recent World Happiness Report. The core difference between the two polls is that the UN measures happiness based on how people see their lives, whereas the Gallup poll measures how people live their lives.

It is common to see developed economies make up the bulk of the happiest countries list because developed economies tend to have more stable governments, which provide more jobs, a wealthier middle class and a better overall quality of life.

Why then have Latin American countries made it high on the list? If we have caught the deeper meaning of happiness here, then we believe it is a sign of Latin America’s robust fundamental health.

Latin American markets have typically been deemed as being financially weak, emerging economies with deteriorating infrastructure. Others have wondered if the region is over-reliant on exports, if its countries are too poor to thrive and if there are still opportunities left to invest in its markets. Happiness aside, the reality is different.

Over the past decade, Latin American countries uniformly built substantial cash reserves, which point to improving economies. Japan and the EU 27 of the developed world have debt levels as a percentage of GDP nearly three times that of Mexico, Chile or Brazil.

As for exports, they currently make up only a small proportion of GDP among Latin American countries. In short, it is better than it seems in Latin America. Let happiness speak for itself by asking Latin America’s middle class.   

The middle class is often stronger in developed countries than in emerging ones. But in Latin America, middle class strength is growing. More than 70% of the Latin American population is now urbanized. The purchasing power of the middle class in the five major Latin American countries is now four times higher than that of emerging market Asia excluding China.

As the Latin American middle class expands, this may create investment opportunities across the region’s industries. Demographic trends show that a large percentage of the Latin American population is about to enter the productive phases of life.

Domestic demand for goods and services has helped create business within the consumer, banking and technology sectors. This has in turn helped to balance a historically commodities-focused region, working to improve the region’s overall economic health.

All factors combined, Latin Americans are becoming even happier. In all age groups, Latin Americans reported substantial and continuing increases in life evaluations between 2007 and 2013, according to the UN’s happiness study.

Can the improving economic health of Latin America be attributed to its growing state of happiness? The message to investors is simple: No matter how you define it, Latin America is step ahead in the emerging world and catching up with its developed counterparts.

 

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