Chile: A Hot Emerging Market

10/17/2013 10:00 am EST


Jim Powell

Principal Analyst, Global Changes & Opportunities

One sector that promises to deliver top profits is emerging nations. And most emerging markets look very cheap right now, suggests Jim Powell, editor of Global Changes & Opportunities Report.

When the countries were booming, investors pumped their prices through the roof. Now that EM economies have cooled to more sustainable levels, investors are bailing out, leaving stocks greatly oversold. It won't be long before the market takes a second look and adjusts the prices upwards.

I think buying emerging nations at today's beaten-down prices is a lay-up shot for long-term profits.

And at their current prices, the most attractive emerging nations available now are in Latin America. And our latest new recommendation is iShares MSCI Chile Investable Market Index Fund (ECH).

Investors who would like another emerging market with great potential for growth should consider Chile, a remarkable country that is outperforming both the region and the world.

That's not surprising since the laissez-faire economy of Augusto Pinochet's dictatorship was left mostly intact by his successors.

Chile ranks seventh on the Economic Freedom Index, just below Canada, and a full two points above the US. The country has strong financial institutions and the highest sovereign bond rating in South America. Chile's current growth rate is 4.5% versus 2.5% in the US.

Chile is the world's largest copper producer, which is both a blessing and a curse, depending on the state of the world economy. In response to cooler growth, copper prices dropped 8.2% in the year, through May 17.

Longer-term, I think the resource hungry world will buy every bit of copper that Chile produces, and will pay a premium to get it.

The country also has a well-diversified economy with a strong agricultural sector, an expanding manufacturing base, and a prosperous consumer market. Fisheries, timber production, and tourism round out the picture.

Despite its strengths and long-term potential, Chile's economy has suffered over the last three years due to the global slowdown. But if the cooling-off had not occurred, we would not have today's opportunity to buy Chile at such attractive prices.

I think the best way to participate in Chile's success is through the iShares MSCI Chile Investable Market Index. Chile has already started to bounce off its lows and the timing appears to be right for this fund.

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