Already officially in bear market territory with a year-to-date loss of 22%, more pain could be in the offing for the iShares MSCI Chile Capped ETF (NYSEArca: ECH).

On Monday evening, Chile trimmed its full-year 2013 GDP growth estimate to 4.6% from 4.8%, indicating that the South American country is the latest emerging market to be crimped by slowing growth in China. Chile is the world’s largest copper producer and the red metal comprises roughly two-thirds of government revenue and more than half of export revenue. The price of copper will fall to $3.28 per lb, from the $3.40 previously forecast, the country’s budget office said on Monday, Reuters reported.

Investors have previously embraced Chilean stocks because the country is stable, has solid regulations and low levels of corruption coupled with a vibrant financial services sector. But the country’s economic fortunes, and by virtue ECH’s fortune’s, are often tied to Chinese copper demand. Fears of slowing Chinese copper weighed on ECH in 2012 as well, sending the ETF down about 20% in the second quarter, but the fund was able to rebound for an 11.3% annual gain. [Chile ETF Rallies on Chinese Copper Demand]

Asking for a sequel to that rebound this year may be asking for too much. Monday’s downward GDP revision is the latest in a string of glum economic news that has been pressuring ECH. As a result of Chinese growth concerns, GDP estimates for Chile have been sliding. Earlier this month, the International Monetary Fund cut its Chilean GDP growth outlook to 4.6% from 4.9%. The IMF did that a week after the Chilean central bank pared its GDP growth range to 4% to 5% from 4.5% to 5.5% at the end of March. [Chile ETF: A Diversified Commodity Play]

ECH’s correlation to the copper trade is frustrating for some investors because the materials sector is merely the ETF’s fourth-largest sector weigh at just over 12%, 160 basis points behind consumer staples for third place and about half the weight allocated to utilities, the ETF’s largest sector exposure.

Making ECH perhaps more vulnerable to additional downside is the fact that while plenty of emerging markets look inexpensive on valuation, Chile’s IPSA Index trades at a noticeable premium to the iShares MSCI Emerging Markets Index. For its part, ECH is richly valued relative to the comparable Brazil and Peru ETFs.

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