Chile Funds Bring Home Money as Ipsa Leads Region

Jan. 16 (Bloomberg) -- Three of Chile’s best-performing equity fund managers are bringing money home on expectations Latin America’s top stock market in 2008 is in the best position to weather the global recession.

Scotiabank Sud Americano SA began trimming holdings in Brazil and Asian emerging-markets a month ago while Banco de Chile is selling stakes in raw-material producers such as Rio de Janeiro-based Cia. Vale do Rio Doce. Santander Asset Management in Chile, which oversees $4 billion, also has increased the nation’s weighting in its emerging market holdings, said Chief Investment Officer Felipe Hurtado.

Chile’s Ipsa index is beating all Latin American benchmark indexes this year with a gain of 5.1 percent on speculation President Michelle Bachelet’s plans to start tapping $22 billion saved during the four-year boom in copper, the nation’s largest export, will keep the economy growing as interest rates fall.

“In an uncertain and volatile scenario Chile has shown it’s much more defensive than other emerging markets,” said Santander’s Hurtado. The company’s ‘Superplan Dolar’ fund beat all its peers based in Chile in the last year with a return of 13 percent.

Interest-Rate Cuts

The government is using its savings to fund a $4 billion economic stimulus package, while the central bank last week slashed interest rates by a bigger-than-estimated full percentage point to spur growth as copper demand wanes. Rates probably will continue to fall this year, improving the outlook for consumer stocks, said Hugo Aravena, a fund manager at Scotiabank’s Scotia AGF, which is boosting its Chilean holdings.

“If you’re adjusting for risk-return, Chile is a better investment right now,” Aravena said in an interview yesterday. He helps manage $660 million and runs Fondo Mutuo Acciones Nacionales, Chile’s second-best performing fund in the last year.

The Reuters/Jefferies CRB Index of 19 raw materials dropped 36 percent last year and is down another 3.7 percent in 2009. Chile’s stock market, weighted toward utilities, is more insulated from falling commodity prices than neighbors, helping the benchmark Ipsa index become Latin America’s best performer last year with a 22 percent loss.

Emerging-Market Plunge

In Brazil, where commodities comprise half of the MSCI Brazil Index, the Bovespa plunged a record 41 percent in 2008. The MSCI Emerging Markets Index tumbled 54 percent as investors shunned riskier investments amid the worst financial crisis since the Great Depression.

Hurtado is increasing Chile’s weighting in Santander’s emerging-market portfolio and “returning” to the country’s retail stocks on the prospect more interest rate cuts and government stimulus plans will bolster spending.

Chile’s better performance makes the market more expensive than peers. The Ipsa trades at about 13 times reported earnings, compared with the Bovespa’s 9.2 multiple. The MSCI Latin America Index also trades at 9.2 times profit.

The economy isn’t immune from the global slowdown. Economists in Chile cut their growth forecast for this year to a median of 1.5 percent from an estimate of 2 percent last month, according to a Jan. 8 survey by the central bank.

Concern that markets may decline in the coming months on signs of a deepening global recession is spurring Banchile Inversiones to trim holdings in raw material companies and add Chilean utilities such as Santiago-based AES Gener SA.

“Things don’t look too good in the short term,” Gabriel Benitez, who helps manage about $400 million at Banchile, said in an interview yesterday. “In that sense we’re looking for a more defensive portfolio, so we’re reducing Brazil and increasing our Chile focus.”

Banchile’s Inversionista Calificado I fund that Benitez helps manage is the ninth-best performer out of 135 Chile- domiciled equity funds in the last year, according to Bloomberg data.

“In relative terms, Chile could perform better in a down market,” he said.

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