ChristopherCarrollSmith

I'm buying weakness in Chilean stocks

Long
AMEX:ECH   iShares Inc. iShares MSCI Chile ETF
After the IPCC's recent report showing that the North Atlantic Current may be on its last legs, I decided that I needed to diversify away from the US and Europe a bit. (If the North Atlantic Current fails, it would cause massive, disruptive climate change for Europe and North America.) So I committed to look for opportunities in some country ETFs.

The one I've been buying is $ECH, the iShares Chile ETF . Chile stocks are beaten down because of currency weakness amid heavy pandemic spending, but honestly their debt-to-GDP ratio is still one of the world's best at just 27%. (Contrast the US at 107% and Japan at 238%.)

Chile has had a highly effective vaccine rollout, with the world's sixth highest vaccination rate. (With 67.2% of Chileans fully vaccinated, they lag behind a few much smaller countries, like Malta and Iceland.)

Thanks to pandemic UBI and a high vaccination rate, Fitch yesterday raised its 2021 real GDP growth forecast for Chile from 6.1% to 8.3%, making Chile one of the world's fastest growing economies this year, trailing just behind China's 8.4%. But whereas China ETFs trade at 14x cash flow and yield 1.1%, $ECH trades at less than 5x cash flow with a distribution yield of 2.34%.

There is, undoubtedly, some political risk when buying a Latin American ETF . Latin America is notorious for its political instability, and Chile is no exception. Chile currently ranks 19th in the world for economic freedom, and its current leader is a Harvard-trained economist and business engineer. But he's also wildly unpopular due to excessive use of force against protesters the last couple years. The country is currently in the process of drafting a new national constitution, and many of the constitutional delegates lean left. It remains to be seen what shape the future government of Chile might take.

Despite the uncertainty, the immediate future for Chile looks relatively bright . At this valuation and with this GDP growth rate, I've bought a modest stake and plan to hold for the forseeable future.
Comment: Adding some more Chile exposure in this area.

Comment: Placed a buy order here


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