Chile: The Underrated Emerging Market

When investors think of emerging markets, they often think of the BRIC countries of Brazil, India, Russia, and China. The nation of Chile, however, has a lot more going towards it than the recent catastrophe of trapped miners. Chile is an under looked developing economy that has grown to become one of the most stable and prosperous economies in Latin America. With a stable free market friendly government, its position as one of the world’s top mining sectors, low inflation, and high economic growth, Chile is an emerging market that will outperform the indexes of the developed world and possibly the some of the BRIC countries.

First the Chilean government structure is stable and very friendly to investors. According the Heritage Foundation index of economic freedom, Chile is most economically free country in South America. Chile is also noted for having the highest GDP per capita and lowest corruption rates in Latin America. For investors, stability and consumer purchasing power allows business to grow and consumers to add to the economy beyond living expenses. Unlike China and India which have instability due to autocratic regimes or inter-ethnic violence, Chile is a stable democracy with no strife. With a low debt to GDP ratio 6.1%, and a privatized social security system, neither government spending nor future entitlement liabilities will put an anchor to growth as seen in Western nations and Japan. Also, Chile has favorable investment law that does not distinguish foreign investors from Chilean citizens. Being a stable society with lack of government burden and openness to free trade and foreign investment are policy strengths that bolster Chile above some its emerging market competitors for investing opportunities.

Chile’s high growth and production and exporting of hard assets such as copper also make it an attractive investment. As the world’s largest producer of copper, Chile has a strong mining sector that provides real value to the nation’s economy. Also with BRIC countries and the West heavily reinvesting in infrastructure, the need for copper wiring should boost the demand and price for copper to the benefit of Chile. Other important exports to Chile include gold, wine, and forestry products. Chile also has the most developed financial system in Latin America spurred by private pension system capital that needs to be invested. Overall, Chile is a leading producer of minerals in the globe and has plenty of growth opportunity in exporting commodities while continuing to expand its rapidly growing financial industry.

The best way for investors to invest in the Chilean economy is to buy Chilean ETFs. For those who lack the time and resources to research the competitive balance of Chilean firms against each other and to translate Spanish financial statements, these ETFs provide the best way to capitalize on the growth of Chilean business as a whole. The top Chilean ETFs available are the Aberdeen Chilean Fund (CH) and the iShares Chile Index (ECH). I personally recommend the Aberdeen Fund because it pays a much higher dividend yield (6.3% vs. 0.95%) and even with its recent acceleration in price is still trading at a bargain with a P/E ratio if 7.5.

Overall, Chile is possibly the most neglected emerging market with tremendous opportunity to growth in the next day. Free market policies, the low probability of civil disorder, and increasing commodity prices should propel the Chilean economy along with its South American neighbor Brazil as the top two emerging markets on the globe.