When it comes to Latin America investing destinations, Chile often goes overlooked relative to Brazil and Mexico, the region’s two largest economies, but that should not take away from opportunity with the iShares MSCI Chile Capped ETF (NYSEArca:ECH).
Up nearly 22% year-to-date, ECH is one of this year’s best-performing emerging markets single-country ETFs. This year, ECH is easily outperforming its Brazil, Colombia and Peru counterparts as Chilean stocks work their way toward record highs.
One country whose stock market we highlighted for its (possibly huge) potential was Chile. Like many resource-laden emerging markets, Chile’s IPSA Index had suffered severely over the prior 6 years. However, the signs of a potential turnaround were evident,” according to ETF Daily News. “First off, the IPSA had already twice tested potentially key long-term support in the 61.8% Fibonacci Retracement of its 2009-2011 rally, near 3400. Secondly, its post-January bounce had brought it up to test its post-2010 Down trendline near the 4050 level. After several touches over the prior few years, we surmised that the index stood a reasonable chance of finally breaking up through the trendline.”
Chile is getting a lift from resurgent copper prices as the country is the world’s largest producer of that industrial metal. The iPath Bloomberg Copper Subindex Total Return ETN (NYSEArca:JJC) is one of this year’s best-performing commodities exchange traded products.
Related: Emerging Markets ETFs Gain Technical Momentum
ECH holds 32 stocks, 13.4% of which hail from the materials sector. The utilities and financial services sectors combine for about 44% of the ETF’s weight. Consumer discretionary and consumer staples names combine for 20.6% of the ETF’s weight.
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.
“The IPSA spent the 2nd quarter in a consolidation pattern, digesting the 1st quarter move in about as optimal a fashion as a Chile bull could have hoped. For 3 months, the index never dropped more than 3% below its rally highs, until a brief dip toward the end of June in what we surmised may simply be a “shakeout”. Indeed, the index snapped back immediately in slingshot fashion, hitting new multi-year highs in early July,” according to ETF Daily News.