If your portfolio isn't going north, try looking south.
If you're an emerging-market investor, forget Brazil, focus on Chile. It's true that emerging markets have taken a beating, with the benchmark MSCI Emerging Markets Index down 15% last year, but there are a few bright spots to invest in in Latin America. First, stay away from Brazil, which is in the midst of a recession. But you may want to consider Mexico, Peru and Chile. Mexico is highly geared to the U.S. economy, and has demonstrated resiliency as other emerging markets have sold off. Peru's market may bounce if a business-friendly candidate is elected president this spring. But the country that should interest many emerging-market investors is Chile.
Even though Chile is highly dependent on commodity exports, its economy has already gone through a period of adjustment to depressed prices. In particular, fiscal revenues have declined considerably, and the currency has depreciated materially. Because Chile imports ample amounts of energy, it benefits when oil prices are at low levels. Even though the country's estimated GDP growth for 2016 isn't robust, at 2%, it is better than other emerging markets. In addition, the country has about $25 billion in cash reserves to insulate against a further downfall in the economy.
Chile's stock market has attractive valuations. It has a forward price-to-earnings ratio of 13, below the historical 10-year average. Earnings per share growth also looks promising, with higher-than-15% growth expected for this year. In addition, local pension funds and mutual funds are increasingly becoming net buyers of the market. The market is also outperforming. The MSCI Chile index was up about 0.6% in dollar terms over the last month vs. the MSCI Latin America index, which was down nearly 5%.
To take advantage of Chile's relatively promising economic picture, consider buying the following three stocks:
1. Enersis (ENI)
Enersis is an electric utility that is listed on the New York Stock Exchange. The company is actively trying to grow its footprint in Brazil. Even though Brazil has its problems, this could amplify Enersis' revenue numbers. In addition, the country is pursuing opportunities in Argentina and Chile.