Up 16.5% year-to-date, the iShares MSCI Chile Capped ETF (NYSEArca: ECH) is one of the best-performing emerging markets single-country exchange traded funds. It is also defying weakness in the copper market, an important factor because Chile is the world’s largest producer of the red metal.
The iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC), an exchange traded note that tracks copper price movements, is a laggard showing relative to other commodities exchange traded products.
In what could prove to be a cautionary tale, JJC’s laggard status could morph into an all out decline as copper prices approach a critical technical juncture. While production cuts may support prices now, the bounce in the copper market may be short lived as fundamental factors remain weak.
Related: Strengthening Dollar Plaguing Copper ETN
“According to the number one copper producing country’s central bank, the value of Chile’s copper exports fell 16.1% in the first half, compared to H1 2015, on par with the financial crisis of 2009. Chile exported $13.4 billion worth of copper in H1, including $6.356 billion worth of copper cathodes and $5.805 billion of copper concentrate. Monthly copper exports dropped a whopping 28% to $2 billion, according to Platts, reports Mining.com.
[related_stories]Still, Chile’s economic activity grew more than analysts expected in December, led by services, Bloomberg reported. The Imacec index, a proxy of gross domestic product, increased 1.5% year-over-year, compared to forecasts of 0.9%. The economy expanded 0.8% month-over-month and wages gained 5.2% year-over-year.
“Just this week however, an indication that Chile will be exporting more copper, with the announcement that BHP Billiton, the world’s biggest mining company, has committed to spend just under $200 million to get more copper out of its 57.5%-owned Escondida operation in Chile, the world’s largest copper-producing mine,” according to Mining.com.
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Although Chile is viewed by some market observers as the most advanced and open South American economy and it is undeniably home to Latin America’s highest sovereign credit rating (AA-), there is also no denying the country’s dependence on copper exports as a driver of government revenue.
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