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Latin American techs leaving commodities in the rearview mirror

. Aug 26, 2020
Latin American tech firms leaving commodities in the rearview mirror Photo: PSGflash/Shutterstock

In the first week of August, Argentinian online marketplace firm Mercado Libre became the most valuable company in Latin America, with its USD 60.6 billion market cap taking the crown from Brazilian miner Vale. That a tech-based company would be worth more than a firm based on extracting and producing commodities is a symbolic shift in the region, similar to what was seen in 2011 in the U.S., when Apple surpassed ExxonMobil for the first time.

Publicly traded on Nasdaq, Mercado Libre achieved

excellent results in Q2 2020, with its shares appreciating 101.8 percent in value between April and June. E-commerce has experienced a significant uptick during the Covid-19 pandemic, with countries around the world closing their in-person economies during isolation measures. But this trend has influenced the tech sector as a whole, with a number of Brazilian firms seeing notable rises in stock prices since March.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3579075"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>Web hosting company Locaweb — which went public in February of this year — saw shares rise 142 percent between March and late August. Software companies Linx and Totvs enjoyed their own 49- and 45-percent increases in stock prices. Along with a host of tech-related firms, they outperformed Brazil&#8217;s benchmark stock index Ibovespa, which has risen 23 percent since social isolation measures began in the country.</p> <p>Experts believe that the shift to tech witnessed during the pandemic is set to persist long after the health crisis subsides, spelling good news for technology firms.</p> <p>“This is not isolated growth, restricted to Mercado Libre, for example, or specific to this moment. I believe it is a transformation that is here to stay, even though the intensity may decrease as time goes by,” says José Falcão, a variable income specialist at broker Easynvest.</p> <p>“Companies that had plans to expand online sales have advanced a lot during the coronavirus crisis,&#8221; he explains. &#8220;People were ‘forced’ to change their habits and make more online purchases, even though that possibility already existed.”</p> <p>Analysts say investors have begun to view the technology market as a more resilient sector in the short term, suffering less impact on revenues. Consequently, they started to add technology companies to their portfolio, even though Brazil and other Latin American countries&#8217; expertise traditionally lies in commodities.</p> <h2>Is it worth investing in Latin American tech firms?</h2> <p>Alexandre Marquesi, professor at the São Paulo-based Escola Superior de Propaganda e Marketing (ESPM), points out that the success of e-commerce was best achieved by those that had already adopted a strong strategy in this realm. “Mercado Libre did not appear overnight. It is over 20 years old, has undergone several transformations and its most expressive growth comes from the last four, five years,” he says.</p> <p>Meanwhile, professor Emanuelle Nava Smaniotto, from Unisinos, says that while these companies will have good projections of future returns, the market is uncertain and all firms are subject to systemic risks.</p> <p>“Certainly more traditional and consolidated companies, for whom the market is well defined, do not carry out as many reinvestments and distribute dividends, and those may be less risky to invest in. Tech companies, on the other hand, are constantly reinvesting for innovation and, with good market prospects, they certainly have projections for greater returns,” she says.</p> <hr class="wp-block-separator"/> <p class="has-text-align-center"><a href="https://labs.ebanx.com/en/articles/business/boosted-by-the-pandemic-latin-american-techs-are-leaving-commodities-in-the-rear-view-mirror/"><em>This article was originally published on LABS – Latin America Business Stories, a news platform covering business, technology, and society in the region for an English-speaking audience</em></a></p> <figure class="wp-block-image size-large"><a href="https://labs.ebanx.com/en/"><img loading="lazy" width="1024" height="124" src="https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x-1024x124.jpg" alt="https://labs.ebanx.com/" class="wp-image-41934" srcset="https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x-1024x124.jpg 1024w, https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x-300x36.jpg 300w, https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x-768x93.jpg 768w, https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x-610x74.jpg 610w, https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x.jpg 1320w" sizes="(max-width: 1024px) 100vw, 1024px" /></a></figure> <p>

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Murilo Basso

Murilo Basso is a freelance journalist, consultant in Public Relations and is finishing a master's degree in Public Policy and Human Rights at the Pontifical Catholic University of Paraná (PUCPR).

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