Published: February 22, 2010
Investors with a stake in this overlooked
land don't mind the lack of publicity. While it may be a small
country of less than 17 million people, its equity market packs
quite a punch. In fact, it has posted a stunning return of
+3,014% since 1989. That 30-fold increase would have turned a
modest $10,000 investment into a cool $300,000.
In fact, a quick search of the this country's main index on
Google turns up a scant 6,700 results. By comparison, you'll
find more than 65,000 entries for water skiing squirrel videos.
Just a few decades ago, this country was pinned under the
repressive thumb of military dictatorship. But reforms
recommended by famed U.S. economist Milton Friedman helped sow
the seeds of change and put the country on a much different
Inflation was corralled, taxes were cut, markets were
deregulated and restrictive trade barriers were taken down. At
the same time, the privatization of nearly 300 state-owned
companies helped slim the bloated public sector -- a true
economic renaissance that came to be known as the "Miracle of
And after 15 years of steadily rising
per-capita income and robust GDP growth of +5.5%, Chile is now,
by many standards, South America's most prosperous nation.
Chile is a long, narrow ribbon of land stretching more than
2,800 miles. Sandwiched between the Andes Mountains and the
Pacific Ocean, the varied terrain is a striking contrast of
geology and climate, ranging from deserts to glaciers.
The Chilean people are well-educated, proud of their rich
literary heritage, and (like many others in the region) avid
soccer fans. They are also among the world's most earnest
savers, with payroll withholdings prudently invested in
privately-managed stock accounts.
The fact that Chile has adopted a privatized social security
system speaks volumes. During the past couple decades, the
transition to a market-based economy has transformed the country
from an economic backwater to a role model for all of Latin
Most observers rate Chile as the most competitive and globalized
economy in the region. The CIA World Factbook reports Chile has
more bilateral trade agreements in place than any other country.
Chile's principal export is copper, but fruits, nuts, seafood
and timber are also plentiful -- accounting for roughly 40% of
the nation's GDP. When copper prices were soaring, leaders were
smart enough to sock away the proceeds for a rainy day. At last
count, the country had amassed more than $20 billion in
sovereign wealth funds (not counting billions more in central
And in a refreshing change of pace, the federal government is
forced by law to spend within its means and operate at an annual
surplus. That mandate was temporarily relaxed during the
recession, but the country still has a trifling debt equal to
just 4% of GDP -- versus more than 80% in the United States or
nearly 200% in Japan.
That fiscal discipline helps explain why Chile has the strongest
sovereign credit rating in Latin America, according to Standard
ETF Authority staff and I are confident Chile is still
moving in the right direction, particularly with last month's
election of billionaire business tycoon Sebastian Pinera as
President. The Harvard-educated entrepreneur (who helped
introduce credit cards in the 1980s) will extend the successful
policies of his predecessors and draw on a strong business
background to promote job growth.
Throw in record-low interest rates and aggressive stimulus
measures, and we see a favorable macro backdrop to support
continued gains for Chilean companies.
Don't make the mistake of assuming this market is just another
play on commodities. Yes, Chile is inextricably linked to copper
-- it satisfies approximately 40% of the world's demand each
year. Instead, corporate profits on the Santiago Stock Exchange
are more dependent on utilities, basic materials and consumer
products sectors -- businesses that are less exposed to external
shocks and closely tied to domestic consumption. When the world
went into recession in 2008, Chile didn't freefall like most
other emerging markets.
In fact, Chilean stocks held up even better than the S&P 500
during the downturn. They raised a few eyebrows on the ride back
as well, soaring more than +85% this past year. But prices
remain well below their pre-crash levels and the country's
short-lived recession is already a fading memory, catching
experts by surprise.
Chile won't remain a secret forever. Now is the opportune time
to stake your claim -- and
this asset class could be the best way to profit.
-- Nathan Slaughter
StreetAuthority Market Advisor
The ETF Authority
P.S. -- A few days ago I recommended my top Chilean play
to my ETF Authority readers. It's
paying out an 8% yield and well-positioned to generate
outsized gains in the months ahead. New subscribers will get all
the details --
go here to learn more.