With Thursday’s close at $35.46, the iPath Dow Jones-UBS Copper Total Return Sub-Index ETN (NYSEArca: JJC) is trading at its lowest levels since the third quarter of 2009. That means copper futures are plunging, but the bad news is not confined to JJC or ETFs such as the Global X Copper Miners ETF (NYSEArca: COPX).
Crumbling copper is crushing the iShares MSCI Chile Capped ETF (NYSEArca: ECH). To be fair, JJC’s 10.4% loss over the past month is more than twice as worse as the 4.2% shed by ECH. A closer look sheds light on a more ominous situation: Over the past week, JJC is off 6.3% while ECH is off 6%, indicating the two products are moving near lockstep. That makes sense as Chile is the world’s copper-producing country. [Chile ETF is a Commodity Play]
Year-to-date, ECH is down 9.4%, a performance that is 80 basis points worse than the iShares Latin American 40 ETF (NYSEArca: ILF). Said another way, the only Latin America single-country ETF that has been worse than ECH this year is the iShares MSCI Mexico Capped ETF (NYSEArca: EWW). [Mexico ETF Dropping Like a Hot Tamale]
Chile’s central bank has been trying to help, but to no avail. The central bank there cut interest rates for the fourth time in six months Thursday, but over those six months, ECH has tumbled 16.5%. Only Argentina’s peso has been worse than the Chilean peso among emerging markets currencies over the past six months.
While the weak peso should benefit Chile’s export-driven economy, it is leading to a wider current account deficit at a time when investors willing to embrace emerging markets equities are prizing those markets with account surpluses or, at the very least, narrowing deficits. It is estimated Chile’s current deficit will grow to 3.7% of GDP this year from 3.2% last year, Reuters reported.
Adding to the lack of attractiveness regarding Chilean stocks at the moment is that the market is not deeply discounted as other developing economies. The MSCI Emerging Markets Index trades at a 11 times earnings, but ECH’s P/E is more than double that.
iShares MSCI Chile Capped ETF