Alpha investment strategies in emerging markets: Assessing the potential and competitiveness of Latin American firms

Capital flows into Emerging Markets and Developing Economies (EMDEs) have grown significantly in the last decades and have even intensified in recent years. In the current environment, characterized by high levels of uncertainty and risk, Latin American firms face the challenges of making themselves known to investors and taking advantage of these resources to sustain growth, consolidate operations and internationalize business. The purpose of the paper is to propose a methodology that would allow advisors to match investors' preferences with the sources of value of firms. The paper starts with: 1) an analysis of the push and pull factors that determine the patterns of international capital flows and investments; 2) an analysis of the role of country, industry and company factors in top-down and bottom-up investment selection strategies; and, 3) a review of the theoretical foundations of the sources of value of a company. The methodology proceeds in three stages. First, we use discriminant analysis techniques to determine if there is a correlation between a country's risk factors and the performance of firms. Second, the investment selection strategies of investors, based on their risk preferences, are aligned with the operational and financial potential of firms. Finally, based on the results of the first stages, we suggest a strategy for firms to access financial and capital markets to improve their competitiveness and ensure their successful integration into the global economy.