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Chile is Looking Hot

madhedgefundtrader's picture




 

It is an old trading adage that if you throw bad news on a market and it doesn’t go down, you buy it. That has happened in spades in this prosperous Latin American country, when the ETF barely backed off a peso after it was devistated by a massive 8.8 magnitude earthquake in February that caused $32 billion worth of damage.

While I have seen too many emerging nations blow their mineral wealth on ornate palaces, fast cars, and faster women, and stash the rest in secret Swiss bank accounts, that is not the case with Chile. Looking at the country’s finances is a breath of fresh air.

Of course, the 800 pound gorilla in the room is copper, for which it is the world’s largest supplier, and generates one third of its GDP. Chile has had the good luck to be run by a government that took windfall prices from copper’s meteoric price rise over the last decade and poured it into development projects and debt reduction. It runs a debt to GDP of only 6%, compared to 60% in the US, and 140% in troubled Greece.

While corruption is rampant in much of the continent, the newly elected president, Sebastián Piñera, is already a self made billionaire, having made a fortune introducing credit cards to the country during the seventies. So what’s the point? You don’t get a more pro business leader than that.

The country’s demographic pyramid looks good until 2017, when a rapid shrinking of its fertility rate starts to bite (click here for why this is important at http://www.madhedgefundtrader.com/april_12__2010.html ). It is already approaching US fertility levels of 2.1, barely the replacement rate.

Prior to the earthquake, GDP growth for the previous two quarters came in at an explosive 11.3% and 13.7% annualized rates. Many analysts believe the full year rate will come in as high as 5.5%. With reconstruction now getting underway, the central bank is expected to raise interest rates to keep the economy from overheating, likely leading to a stronger Chilean peso. Rising revenues and an appreciating currency give investors a “hockey stick” effect that I am always looking for in international trading profits. Think Canada, Singapore, and Australia.

And get this: even though the government is running a budget surplus, it raised taxes to pay for the rebuild. Perish the thought! 

I recommended Sociedad Quimica Y Minera (SQM) last year, the country’s largest lithium producer for batteries (click here for the call at http://www.madhedgefundtrader.com/april_2__2009.html ), with spectacular results. Ironically, Chile’s ETF (ECH) is dominated by utilities and has no direct mining exposure, as they are all government owned, such as the giant CODELCO. That will change if privatizations begin. But Dr. Copper’s footprint in the country is so big, you can’t help but participate, even if indirectly.

With China on a tear to accumulate more of the red metal for its own infrastructure build out, that looks like a good bet.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

 

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Wed, 11/10/2010 - 04:20 | 715319 cheap uggs for sale
cheap uggs for sale's picture

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Thu, 08/05/2010 - 13:14 | 504877 Riesgoso
Riesgoso's picture

You can read a report I sent out yesterday for a Newsletter that a friend writes.

 

I help him out with analysis and trade ideas for the chilean ADR's that

trade in the U.S

http://www.mediafire.com/?kfpnayr5shq92w1

 

It´s hard to predict a market top but I think is prudent to be cashing gains

in Chile at this moment.

 

 

Thu, 08/05/2010 - 12:41 | 504773 Riesgoso
Riesgoso's picture

I

Thu, 08/05/2010 - 12:42 | 504780 JuicyTheAnimal
JuicyTheAnimal's picture

When Idiothedgefundtrader says buy that means it's time to sell so I think you got it right. 

Thu, 08/05/2010 - 12:39 | 504769 Riesgoso
Riesgoso's picture

I'm from Chile and I agree that my country has low debt and some positive 

macro factors but the market is very overvalued and overbought.

 

It has moved in a near parabolic up move during the last month and half

an it's very expensive.

 

It's trading at 22.3 P/E ratio, the last market peak was at 23.2.  When

the market bottomed in 2008 the P/E ratio was at just 10.

 

Also copper exports to china have been declining, we export over 20% 

of our total exports to this country.   We also got a 49,4 reading on the latest

China PMI.  If China rolls over so will Chile.  The stocks are pricing stellar 

growth and there is no room for error here.

 

Speculation is rampant and people that don't know nothing about markets

are buying stocks since they are "hot".

 

I run a brokerage and trading business here.

 

Check out the chart of the ECH...would you buy this market now?

 

http://finviz.com/quote.ashx?t=ECH&ty=c&ta=0&p=w

 

Check out this bank SAN:

 

http://finviz.com/quote.ashx?t=san&ty=c&ta=0&p=w

 

Personally I'm cashing all the gains I have and just leaving a high dividend 

yield stock called Zofri.

 

 

Thu, 08/05/2010 - 12:52 | 504811 laosuwan
laosuwan's picture

I agree. I have been buying property in chile for about a year now. its getting hard to find bargains. Everything is fully priced and health care, education and food is expensive. But there is not much corruption and the country is pretty stable except for the mapuche in the south and the saber rattling from Bolivia and peru in the north. most important your rights are protected as if you were a national, when you invest. much different than in asia where I am from. But, you are right, there is not much room for error. In stocks I like Lan Chile. its a well managed company. But I cannot see their revenue growing much in the future unless they open routes abroad.

Thu, 08/05/2010 - 11:08 | 504492 QQQBall
QQQBall's picture

Did you guys hit Argentina too?

Thu, 08/05/2010 - 11:22 | 504525 Rogerwilco
Rogerwilco's picture

Argentina? In Spanish I believe that's a synonym for corruption. If you want to start a lively discussion in South America, just mention Argentina.

Thu, 08/05/2010 - 10:00 | 504387 pragmatic hobo
pragmatic hobo's picture

hmm ... economy based on export of commodities in what looks like a deflationary global economic environment ... now what can go wrong with that?

Thu, 08/05/2010 - 08:28 | 504236 TLT
TLT's picture

I went to Chile in february. The country is just stagnant. Looks like a place decades ago.

Go to Brazil and you'll see a booming economy. New buildings all over the big cities.

Thu, 08/05/2010 - 12:53 | 504812 sethstorm
sethstorm's picture

Except those buildings are not generally for the public.

The crime/corruption-filled favelas on the other hand are "new" construction and are more likely to be for the average citizen there.  However, they are hardly the thing you wish to have in a country on the rise.  Third World disparities and all that jazz.

Thu, 08/05/2010 - 09:39 | 504351 Rogerwilco
Rogerwilco's picture

@TLT

I spent three weeks in Chile last October looking at real estate and scoping it out as a potential retirement destination. Three weeks was barely enough time to see the areas between Santiago and Calama, and I'm going back this fall to check out some places in the south. I disagree with your assessment, Chile is not stagnant, and compared to other countries in the area, it is the leader. Simple things like potable water, an honest police force, and general literacy tell me it has a bright future.

There were lots of Europeans roaming about, tourists, workers, and expatriates, and they were bidding up RE prices in the large cities. I was surprised by the large numbers of Chinese (there is even a Chinese news channel on TV, in Spanish LOL) in the mining areas and my guess is they are not just sightseeing.

The best way to think of Chile is California of the 1950s, but reversed North to South. Abundant resources, a young demographic, and no overbearing government to screw things up. The only fly in the ointment is a concentration of wealth in Santiago. This tends to slow growth in areas of the far north and south where IMO there is the greatest potential.

Thu, 08/05/2010 - 12:55 | 504821 laosuwan
laosuwan's picture

the chinese are all over the place. after the earthquake prices actually went up as bargain hunters moved in. but there is a dark side; you have to be there awhile to see it. its not all rose colored but, for south america, and for quality of life, its the best.

Thu, 08/05/2010 - 10:05 | 504391 TLT
TLT's picture

You're right. I spent few days and only saw Santiago.

Chile has honest police force, more educated people.

A booming economy is not the best option to live, of course. I saw the city as calm, but just get a cab or look at the cars on the street that everything looks old.

RE in Brazil also are rising. More than 60% rise in 4 years.

Good luck finding a place for retirement. If you're interested in knowing more about Brazil, just ask.

Thu, 08/05/2010 - 09:01 | 504288 malek
malek's picture

Built completely on credit or also a good chunk earnings/savings?

Thu, 08/05/2010 - 09:27 | 504330 TLT
TLT's picture

You're right.

In Brazil, in 2008, if weren't for the government help, the big constrution companies would all be broke.

Credit.

One day it'll all explode.

Maybe Chile is better, indeed.

Thu, 08/05/2010 - 07:14 | 504187 sethstorm
sethstorm's picture

While corruption is rampant in much of the continent, the newly elected president, Sebastián Piñera, is already a self made billionaire, having made a fortune introducing credit cards to the country during the seventies. So what’s the point? You don’t get a more pro business leader than that.

I'm not sure that those two things(corruption and pro-business) are completely separate from each other.

It just means they know how to hide it better.

Thu, 08/05/2010 - 08:22 | 504229 Sudden Debt
Sudden Debt's picture

The man is into credit cards and is raising taxes to build houses... I feel like a thousand jokes comming up :)

Thu, 08/05/2010 - 03:33 | 504098 Contura
Contura's picture

Thanks.

Thu, 08/05/2010 - 01:18 | 504021 NoVolumeMeltup
NoVolumeMeltup's picture

Shoot. Last time I picked Panama as the next spot on your 'up and coming picks dart board.'

So close.

Okay, I call Thailand for your next dart.

Thu, 08/05/2010 - 00:35 | 503969 pinkhouse
pinkhouse's picture

hi:

multi-gen

 

 

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