LATIN AMERICAN markets have delivered explosive growth over the past year, helping funds that invest in the region to the top of the performance tables.

However, there is a menacing cloud on the horizon: elections.

Unusually, presidential and legislative elections will be held in almost all Latin American countries between now and the end of 2006. In the past they have been a source of volatility.

So far, however, markets are untroubled: the IFCI Latin America index has soared by 76% in sterling terms over the past 12 months, compared with a rise of 21% for Britain’s FTSE All-Share.

The markets have benefited from strong global economic growth and booming demand for the region’s commodities, such as copper and iron ore.

Latin America funds have delivered equally impressive returns. Threadneedle Latin America Growth is up 66% over one year, making it the best performing unit trust in any market.

With Latin America funds at the top of the tables, investors are expected to show an interest in the region, but experts say they should take care.

While professionals think it will continue to deliver good returns over the long term, investors may want to hold off until the political uncertainty is out of the way.

Jules Mort, manager of the Threadneedle Latin America Growth fund, said: “Historically, it has always been difficult to make money during presidential elections.”

The countries electing a new president include Brazil, Mexico, Chile and Peru. They are holding legislative elections as well, as are Argentina and Colombia. A changing of the guard looks likely in many of these countries.

Mexico goes to the polls to elect a new president in July next year. On current running, Vicente Fox’s PAN party is expected to lose power to the left-wing PRD, headed by the current mayor of Mexico City Andres Manuel Lopez Obrador. This is worrying analysts because Obrador’s economic agenda is unclear.

Meanwhile in Brazil, where elections are due to be held in October 2006, the current president Luiz Inacio Lula da Silva is lagging behind in the polls to Jose Serra of the centre-right PSDB.

But the volatility in the markets may be short-lived. Indeed, most fund managers are not expecting any dramatic changes to pro-market economic policies, pointing to the example set by Lula da Silva in Brazil.

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