Chile Powers Back After An Unimpressive Four Years, But Hopes Still Pinned on Mining 2

Making it to the top five

For a country whose macroeconomic picture is far from rosy and is battling a charged up political environment, Chile has done quite well when it comes to stock market performance.

Stocks from Chile cap-off this series looking at the top five emerging markets for Q1 2017. The MSCI Chile Index has gained 15.37% for the period, close behind Mexico. However, unlike Mexico, the Index has returned 16.3% in the one year period until March.

Economic and political matters

Economic growth in Chile has been unimpressive for the past four years. Business confidence has been low and some moves by the government, like an increase in taxes, have attracted a backlash from the business community which holds these decisions responsible for worsening the investment scenario in the country.

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These and other issues are coming to the fore because the country is headed for elections in November this year, with primaries scheduled for April and July.

Meanwhile, for a country driven by copper, recent developments have been detrimental to its economy. According to World’s Top Exports, Copper and its ores formed a little less than half of Chile’s total exports in 2016. Chile is home to the world’s largest copper mine, Escondida, which produces 5% of the world’s copper.

The mine, majority-owned by BHP Billiton, was on a 44-day strike – an event which has unnerved the copper industry. Given the importance of copper exports to Chile, this strike could possibly push the economy to the brink of a recession.

However, as seen from the returns above, Chilean stocks have continued to do well.

Investor interest and what’s in store

US investors have not evinced much interest in Chilean stocks. The lone ETF listed on US exchanges investing solely in stocks from the country, the iShares MSCI Chile Capped ETF (ECH), has attracted net inflows amounting to $24 million in YTD 2017 according to Bloomberg data.

Going forward, investors need to take into consideration the macroeconomic developments in the country, especially in light of the copper mine strike, as well as the valuation of Chilean equities. At a price-to-earnings ratio of 17.82, the ECH is not cheap.

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