“We always looked at Chile as something better than us,” says Arthur Ituassu, a professor of international relations at the Pontifícia Universidade Católica in Rio de Janeiro, Brazil.
The growth that Chile’s economy has enjoyed over the last 20 years has brought tangible benefits to the lives of Chileans. The stark contrast between the impact of the recent strong earthquakes in Chile and Haiti highlight how Chile’s infrastructure is that of a developed nation. As a country susceptible to earthquakes, sufficient funds have been poured into the construction of buildings that can withstand powerful tremors.
But the dramatic growth seen in Chile’s economy has slowed. Although it is still growing, it no longer grabs the attention of investors in the way that Brazil now does.
Over the last ten years the MSCI Chile index has risen over 250 per cent, which is impressive when you consider that the MSCI The World Index has fallen by 5 per cent over the same period. However, when compared against the fortunes of the MSCI Brazil index it is easy to see why investors have begun to focus on this other country.
Chile vs Brazil, 10 years
But, data from Financial Express shows that investment in Chile has offered investors steady growth without the volatility that comes with investment in Brazil. The annualised volatility rates for the last ten years of Chile and Brazil are 16.3 per cent and 25.4 per cent respectively. In 2008 when the MSCI Brazil index plummeted over 60 per cent in five months, the MSCI Chile index lost 20 per cent.
Though it is a less volatile market than others in Latin America, Chile’s economy is far from decoupled from the global economy. Chile is a major exporter of copper meaning that its local stock market is sensitive to global macroeconomic trends. However, it is also the case that the government was able to use the windfall from copper exports saved during the times of growth to pull the economy out of the recent crisis.
There are few funds available to UK investors that have a significant exposure to Chile. First State’s Latin America fund has over 26 per cent of its portfolio invested in Chilean equities. The fund’s high weighting in Chile and relatively low weighting in Brazil is reflected in its returns, which are below those of other Latin America funds. However, the fund is also significantly less volatile and would be an attractive option for investors wishing to gain exposure to Latin America without subjecting their investment to high levels of volatility.
For those wishing to add a little more risk, AIG’s Latin America Small and Mid Caps fund also has a significant weighting in Chilean equities but its small and mid cap focus offsets the lower volatility that one might expect from investment in Chilean equities.
Finally, for those thoroughly convinced by Chile’s prospects the Moneda Chile fund is fully invested in Chilean equities, with a significant small and mid cap bias. The fund has returned nearly 75 per cent in the last year.
Fund performances, 1 year
Finally, a word of warning, investors looking at Chile should not ignore the impact of the recent earthquake; economists have lowered their growth expectations for this year.