Chile Stock Market Rally, beats all other EM markets

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Chile Stock Market Rally, beats all other EM markets

Post by admin » Wed Apr 19, 2017 9:48 am

We had this thread late last year, as the Chilean stock market hit a 3 year high. It now has had it's best gains since 1999. Think we are up 17% overall this year on the IPSA.

Well, Chile just shut out all other Emerging market in for March, to be the top emerging market in the world. It has since given up a little bit of the steam, but still some pretty impressive gains.

http://www.marketwatch.com/story/chile- ... 2017-04-13

The big question, is where is the gains coming from?

All the talking heads in the international media insist on doing the copper, copper, copper thing. Helps, but hardly explains the moves, and the copper rally came after the stock market rally.

If you look at the biggest gainers on the IPSA, almost none of them are in the mining industry, and even fewer are copper miners (well, until recently).

Lan (latam) up 50% last year, and 50% this year. They don't mine copper last I checked.
http://www.bolsadesantiago.com/mercado/ ... x?NEMO=LAN

SQM ---- largest lithium producer in the world, as far as I don't think they even own a copper mine. up 48% last year, 22% so far this year
http://www.bolsadesantiago.com/mercado/ ... NEMO=SQM-B

and so on.

Chile's own GDP has been revised down. If copper was doing it, the GDP would be going the other way (it might still).

I see two major reasons:

1. Recovery of the neighboring countries, where Chilean companies have invested heavily over the last 5 years or so. Those stranded investments, are no longer as stranded as they use to be. Colombia, Peru, Brazil, Mexico, even basket case Argentina is showing signs of life. While their domestic companies are still licking their wounds from their own internal political and economic problems, Chilean companies were buying them up or expanding in to those markets.

2. By, by Bachelet, and take your Iphone hippies in congress with you. This is farewell to Bachelet rally. Lagos has dropped out of the race, and there is no real serious contender on the left.

Pinera, if he can keep his mouth shut, might even take the election in the first round. His campaign is simply running on reforming Bachelet's reforms, and that is all he really needs to keep repeating.

The international press seems to also be pushing the rather tired old story that just because Chile is a latin American emerging market with a presidential race coming, it must mean instability. I think the story is the exact opposite. Finally their will be some clarity for investment.

Win, loose, or draw, I suspect just the prospect of a center right candidate will encourage investment, and there is a lot of pent-up investment money that has been sitting on the sidelines for years because Bachelet's administration was too flaky and unpredictable. Thus, probably why Chilean companies spent so much money investing outside of Chile.
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Re: Chile Stock Market Rally, beats all other EM markets

Post by admin » Wed Apr 19, 2017 10:03 am

This headline is a bit alarmist, but the overall article is fairly good coverage of the issues going in to the election. 2018 is expected to produce 3% growth (not so sure about that, but perhaps 2019).

https://www.ft.com/content/6e681350-237 ... 8b4cb30025
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Re: Chile Stock Market Rally, beats all other EM markets

Post by MJSaywell » Wed Apr 19, 2017 10:11 am

admin wrote:This headline is a bit alarmist, but the overall article is fairly good coverage of the issues going in to the election. 2018 is expected to produce 3% growth (not so sure about that, but perhaps 2019).

https://www.ft.com/content/6e681350-237 ... 8b4cb30025
any non subscriber link ?

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Re: Chile Stock Market Rally, beats all other EM markets

Post by eeuunikkeiexpat » Wed Apr 19, 2017 10:43 am

At the same time CLP has been strengthening. I would say it could also be a flight to safety as the USA rattles saber in N Africa and Mid-Near-Far East and the future of the EU is viewed as unstable.
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Re: Chile Stock Market Rally, beats all other EM markets

Post by Space Cat » Wed Apr 19, 2017 12:21 pm

MJSaywell wrote:
admin wrote:This headline is a bit alarmist, but the overall article is fairly good coverage of the issues going in to the election. 2018 is expected to produce 3% growth (not so sure about that, but perhaps 2019).

https://www.ft.com/content/6e681350-237 ... 8b4cb30025
any non subscriber link ?
I usually enter the link into the Google's search field and go into the cache (small green arrow near the link under the title in search results):
https://webcache.googleusercontent.com/ ... en&ct=clnk

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Re: Chile Stock Market Rally, beats all other EM markets

Post by Rhodolite » Wed Apr 19, 2017 1:11 pm

Is this why the US$ has gone from 658 clp to the current 647 clp in less than three weeks?

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Re: Chile Stock Market Rally, beats all other EM markets

Post by admin » Thu Apr 20, 2017 8:15 am

Sorry, got to that article through google news. Forgot they are paywall site, unless you use google.
Rhodolite wrote:Is this why the US$ has gone from 658 clp to the current 647 clp in less than three weeks?
Think that is mostly a copper move going on. Although if Trump really does do something stupid, Chile's peso will gain. Chile has a lot of strategic resources, in relatively calm neighborhood. In fact, all of Latin America would suddenly be a hot place to invest for lack of conflict and raw resources.

There is also a bit of a self-fulfilling prophecy at work. Any time an EM market breaks out above all the rest, it makes headlines and stock filter screens, and more foreign investors come running in and pump it up even more. I think they we have some room to run still, at least through 2018. If we get Pinera in to office, he trims back some of the Bachelet stupidity in regards to taxes, injects some money in to things that stimulate the economy, I would not be surprised if there isn't another easy 20-30% a year left in this rally. add on another say 10% for a stronger peso, and that will make for some serious returns.

Just watch out. As soon as the international media starts regularly using the term "miracle", as in "the miracle of Chile" or "the miracle of Argentina" or the "miracle of Brazil", keep your finger on the sell button ready to pull the trigger. There was a great article a few years ago, I have never been able to find again about the correlation between how frequently use of the word "miracle" in financial media articles is used and how long it took for a emerging market to crash shortly after. Typically it is within 1-2 years.

I sort have come to the conclusion I am done investing in the developed markets. I sold all my stocks in the States last year. By definition, there is little to be gained.

Emerging markets, especially latin american markets, that I in many ways understand better than developed markets, is where the action is at. on average emerging markets have returned something like 15% a year through-out their entire modern history. There has only been like 4 years in which they had negative returns, and the following years normally come roaring back to more than make up for it. It is where the growth is. It is where the distortions are, and thus the opportunities are. So, why would you invest in say the U.S. where you are lucky if you beat inflation? Or europe, that is total basket case (kind of looking like an EM more than developed these days)?

I'll probably buy a bit more Chilean stock. I am also eyeing some of the stronger latin american economies that are in recovery. I like all the pacific alliance countries. Sure, you have to do your homework, but overall they are on the right trajectory.
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Re: Chile Stock Market Rally, beats all other EM markets

Post by tiagoabner » Thu Apr 20, 2017 11:02 am

Emerging markets are actually a safe bet as long as you triple check the economic and political situation beforehand.
Investing in Brazil right now would have its risks due to the complicated political situation. The president was impeached last year, her vice-president acting as president until next year. Only, he is popular with the financial market due to him counteracting many of the previous leftists policies, which has been creating a "Brazil is recovering" illusion outside of the country.
However, he is involved in an electoral fraud scandal and may be impeached as well, so the congressman will choose an acting president in an indirect election. But over a third of all congressman are involved in the biggest corruption scandal ever (think US$3 bi only in documented bribes), so the shit may hit the fan soon ™.

While that's a quite extreme case, most LA economies have some undercurrents that should be analyzed before investing.

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Re: Chile Stock Market Rally, beats all other EM markets

Post by admin » Fri Apr 21, 2017 9:07 am

The one that caught me by surprise about year ago was an article on bloomberg that some foreigner stepped in and bought $50,000 U.S. in Venezuelan stocks. The story was more about the fact that Venezuela still had a functioning stock market, than the particular investment. That was either the dumbest or the smartest investment in Latin America this decade.

Not terribly inclined to be that speculative, but the same rules apply to EM market investment as anywhere else. Stay diversified, don't put all your eggs in one basket, keep some powder dry, etc. Overall patience I have found to be the greatest investment tool.

Honestly, I don't find EM markets any less corrupt or less transparent than developed markets. There are whole libraries written on how to translate the quarterly report jargon in the States, where companies play hide and seek with their problems and real numbers. The big boys will still steamroll over the little guys, trade on insider information (now almost fully legal in the United States). I

don't know how many times I have watched my trades in the states be front run by some market maker (i.e. government sanctioned corruption and insider trading). I sit there, watch a relatively thinly traded stock that has not had a trade all day. I place a trade, and in 5 seconds suddenly there is a pile of trades in front of me moving the price away from my triggers. Yea, that is a even playing field, that is only transparent in so far as you can clearly watch yourself get ripped off without anyone even pretending it is anything else.

The only difference is there is a much larger up-side to the EM. The down side is still a complete wipe-out of your investment. For the same risk, I definitely prefer to see a 25, 50, or a better than 100% on my investment if it goes right; than some chicken-feed, table scraps 2-3% that many blue chips often return.

I also have a bit more faith in the big boys, the powers that be, such as the richest families in Chile, to protect their own interests.
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Re: Chile Stock Market Rally, beats all other EM markets

Post by admin » Mon Apr 24, 2017 12:18 pm

well, it looks like the central bank in Chile might cut interest rates even more
https://www.bloomberg.com/news/articles ... arcel-says

Not sure how to read those tea leaves, but they do seem to think a recover of sorts is on the way later in the year.

I am still inclined to think that lower interest rates overall are good for Chilean companies that intend to invest funds in other economies. simply, cheaper access to money.
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Re: Chile Stock Market Rally, beats all other EM markets

Post by MJSaywell » Tue Apr 25, 2017 11:23 pm

admin wrote:well, it looks like the central bank in Chile might cut interest rates even more
https://www.bloomberg.com/news/articles ... arcel-says

Not sure how to read those tea leaves, but they do seem to think a recover of sorts is on the way later in the year.

I am still inclined to think that lower interest rates overall are good for Chilean companies that intend to invest funds in other economies. simply, cheaper access to money.
That is good news, lower the better.

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Re: Chile Stock Market Rally, beats all other EM markets

Post by eeuunikkeiexpat » Wed Apr 26, 2017 12:45 am

Fuck lower if you have funds earning interest. I think that neoliberal model is seeing its final days.
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