If you haven’t heard or read about it yet, the first game of the 2010 World Cup has been finished. The opening game was
between South Africa and Mexico. The game was a 1-1 draw with South Africa scoring early and Mexico fighting back to tie it up. It was a great beginning to this Cup, and it should be full of many more exciting games.
In this fourth part of my World Cup Series, I will be investigating the South American country of Chile. The nation, located on the west side of South America, is a narrow long country that sits between the Andes on the East and the Pacfic Ocean on the West. The nation is only approx. 100 miles across, which about the same width as the distance between New York City and Philadelphia. The nation also claims the most southern of the Equator civilization. Geography aside, Chile is one of today’s rising markets and overshadowed by its northern colleague Brazil.
Chile leads the South America in many developmental indexes: Human Development Index (ranked 44th in world), Quality of LIfe (ranked 31st in the world), and economic freedom (ranked 10th in the world). Chile is second in South America in GDP per capita, at $14,241 – only $300 behind Argentina. The nation has the world’s 46th largest economy with a GDP at $169 billion, which has grown just over 130% in the past eight years as Chile has globalized itself very well.
The nation has a rich history full of conquest and abundant potential. When first colonized in the 16th Century, the Spaniards originally liked Chile for its agricultural potential that lie in its valley between the ocean and Andes mountains. The nation in the early 19th Century revolted against the Spanish, after they were defeated by Joseph Bonaparte back in Europe. The
nation got its independence in 1818, and it has held it ever since. One of the differences of Chile to the other nations that I have examined is that Chile has been independent for nearly two centuries compared to 50 years for Nigeria, 20 for Slovenia, and less than 100 for Honduras. This stability has allowed for Chile to develop many of its developmental as well as economical indexes.
The nation has gone through political ups and downs, but it has a stable democracy that has lasted for the past thirty years. The nation elected a female president in 2006, who served a four-year term. With so much stability in the nation, is this truly a market with potential for major growth?
There are two main reasons why Chile will continue to grow and present a significant investment opportunity right now. For one, Chile, earlier this year, had a significant earthquake, which was measured at 6.9 on the Richter Scale. The nation had over $15 billion in damage done. This hit to Chile has hurt the nation’s economy, and it is down. The fact of the matter, though, is that Chile is a country with good fundamentals that was hurt by an uncontrollable accident. If the same happened to a stock, it would drop but recover brilliantly because the company is fundamentally sound. That is the way Chile is…
The nation’s economy is diversified across many sectors, and it operates a market economy with significant foreign trade. The nation is ranked very high in globalization and competitiveness, highest in South America in both the Global Competitveness Index (at 30th) and the Index of Globalization, showing how globalized a nation is (at 17). Being the 17th most globalized nation in the world means that foreign trade is high in this nation, which hurts some in the recession, but it also poses big potential to grow external demand to make up for a small population in Chile.
The nation is marked by its sound financial policies and diversified economy. The nation has low inflation at 1.5% in 2009, and it has less than 40% of its GDP wrapped up in external debt. The nation has unemployment at under 10%, while 17% of the nation lives under the poverty line. The nation has seen its great growth because of strong FDI that continues to help the nation grow and prosper, as well as, its domestic companies. Chile has very open foreign investment laws, called the Foreign Investment Law, that gives foreign companies the same rights in Chile as domestic companies. Chile has the highest amount of FDI to GDP rate in Latin America with more than $10 billion of FDI. The nation’s high amount of foreign trade, while hurtful in a recession is a great way for the nation to grow and continue to significant growth.
Internally, Chile has developed itself as well. The nation is a rich resource country that offers more than just resources. The nation has abundant copper mines and other minerals, such as, copper and silver among others. Minerals account for 60% of exports. The nation also exports fruits and vegetables, fish, wood products, and other industry. One good things about the high rate of exports for Chile is that it is highly balanced with the USA leading market share at only 17%. This diversification of trade also helps Chile to do well when one nation falters. The banking industry in Chile has taken off in the past decade after a 1997 reform law that allowed for more activity from banks. Loans, mortgages, debit cards, and currency futures/options have provided a great deal of opportunity for the nation.
Investing in Chile is really a great opportunity as this nation has tons of potential moving forward, and it is currently a bit underwater after the recession and earthquake. The best for Chile though is yet to come. The iShares MSCI Chile Investable Index (ECH) is a great place to start investing in Chile. The index, though, as should be expected has dropped nearly 8% over the year, but opportunity is aplenty right now. The index has grown nearly 100% since the beginning of 2009, and it has a lot of potential moving forward. The ETF has holdings in some of Chile’s largest companies: mining giant Empresas COPEC, financial institution Banco Santander – Chile, airline company LAN Airlines, and others.
For direct company investment, a number of Chile companies are listed on American exchanges. Chemical and Mining Co. of Chile Inc. (SQM) is one of Chile’s leading mineral and fertilizer producers. Another major ADR is for LAN Airlines, which is listed as LFL.
Here are more Chilean companies on the NYSE:
Administradora de Fondos de Pensiones Provida SA (PVD) – A pension fund and financial advising institution.
Banco de Chile (BCH) – Personal and business bank.
Banco Santander – Chile (SAN) – Commercial and retail bank.
Compania Cervecerias Unidas S.A. (CCU) – One of Chile’s leading beer makers with their most recognizable drink being Cristal.
Endesa-Empresa Nacional de Electricidad (EOC) – A leading utilities company in Chile.
There are several others in BCA, ENI, and VCO.
The opportunities are abundant and plentiful in Chile. The nation has become one of the most developed nations in South America, but it still has tons of potential to grow due to its exceptional foreign attractiveness along with its growth potential at
home.
Chile plays its first World Cup game on Wednesday against other World Cup Series proponent Honduras. Chile is participating in its eight World Cup games, but its first since 1998. The nation was in the first ever World Cup in 1930. The team was banned from the 1990 and 1994 Games in a major scandal in which the team faked injury to avoid elimination. The team has not seen much success since its 1962 World Cup 3rd place finish. The team finished second in South America in qualifications behind favorite Brazil. They took only two defeats to Brazil and Paraguay in qualifications. They are in the tough group with Spain, Switzerland, and also Honduras.
Good Investing,
David Ristau
