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Chile Leads The Latin Pack
By: Carl Delfeld
Everyone's talking about China. Don't miss the opportunities in Chile.
Yes. Chile with an "LE" not "NA"
While the whole region is back in favor with investors, it seems appropriate to
highlight Chile which is the economic star of Latin America.
Chile is about two times the size of Montana and has an incredible coastline of
2,650 miles. While only 3% of its land is arable, it has an amazing variety of
climates and rich agricultural production. It gained its independence from Spain
in 1810 and has 16 million citizens of which 90% are Catholic.
The Chile story is somewhat similar to Ireland before its economic takeoff. From
1978 to 1988, per capita income increased only $100 to reach $1,510.
Next, both a military government followed by democratically elected governments
initiated market reforms and opened up the economy. Exports and foreign
investment took off and debt levels came down. Foreign investors in Chile are
treated the same as Chilean investors.
Chile's Take Off and Steady Growth
From 1991-1998 economic growth increased an average of 8% and per capita income
on a purchasing power basis has grown to $10,700. Since then growth has
moderated to a 4-5% range but a total Chilean public and foreign debt at 50% of
GDP is very low relative to other Latin countries.
Trade is very important to Chile with exports accounting for 25% of GDP. It is
rich in natural resources (copper, timber, fruit and fish) and has been busy
signing free trade agreements. A Free Trade Agreement (FTA) with the US took
effect in January 2004 and now 90% of Chile’s exports to the US enter duty free.
After a similar trade pact with South Korea last year, exports rose 50%.
Current President Ricardo Lagos Escobar is under pressure to improve economic
growth rates and bring down the stubbornly high 8% unemployment rate. On the
positive side, inflation and interest rates are low at 2-3%. Chile has
demonstrated fiscal discipline and enjoys both a trade surplus and a budget
surplus.
How to Take Advantage
There are no country- specific ETF’s for Chile but there is the Chile Fund (CH)
which is a closed-end fund managed by Credit Suisse Asset Management. It is up
53% over the past year, trades at a 7.7% discount to its net asset value and
sports a 4.6% yield. Keep in mind that 19% of the fund is invested in just one
copper company Empresas Copec S.A. and the annual fee is high at 1.80%.
Another alternative would be the iShares Latin America 40 (ILF) which invests in
Mexico, Brazil, Chile and Argentina. It is up an eye opening 67% over the past
twelve months with an annual fee of only 0.55%. Currently, 49% of this
exchange-traded fund is invested in Brazil, 38% in Mexico, 10% in Chile and 3%
in Argentina.
Interested investors might also consider the ADR for Banco Santander (SAN) which
is an excellent bank and a good proxy for the overall economy. It is up 42% over
the past year and up 11% so far this year. Banco Santander is one of the 30
companies in the Chartwell Global 30 Index which is an alternative to the Dow
Jones Industrial Average.
About the Author:
Carl Delfeld is head of the global advisory firm Chartwell Partners and is
editor of the “Chartwell Advisor” and the “Asia Investor Intelligence”
newsletters. He served on the Executive Board of Directors of the Asian
Development Bank in Manila and is the author of The New Global Investor (iUniverse:
2005). For more information go to
http://www.chartwelladvisor.com or call 877-221-1496. |
