Chile May Not Need China to Shed Laggard Status

Page 1 of 2

By the standards of many emerging markets ETFs, the iShares MSCI Chile Inv. Mt. Idx. Fd (NYSEARCA:ECH) was a laggard in 2012, returning “just” 8.23 percent. That means ECH trailed the iShares MSCI Emerging Markets Index Fund by 520 basis points.

iShares Dow Jones US Home Const. (ETF) (NYSEARCA:ITB)

Chile wears the crown as the world’s largest copper-producing nation, a gift and a curse depending on the global economic environment. The copper crown intimately links Chile to China, the world’s largest copper consumer. Perception becomes reality and the reality for investors morphs into the belief that Chile’s economy and its equity markets need China to be firing on all cylinders to make the South American country an attractive investment destination.

That scenario leads Chile to being lumped in with South America’s higher-risk, materials-intensive emerging economies. However, the real reality is that the Chile/China link, while not breaking, may be showing signs of decoupling and that might not be a bad thing for iShares MSCI Chile Inv. Mt. Idx. Fd (NYSEARCA:ECH) because the ETF and the Chilean can stand their own two feet.

Surprising Correlations Given the copper conundrum, some investors might expect iShares MSCI Chile Inv. Mt. Idx. Fd (NYSEARCA:ECH) to move in lockstep with comparable China ETFs. That ignores the fact that the materials sector accounts for less than 15 percent of ECH’s weight and that the sector is just one of five that receives a double-digit allocation within the ETF.

In fact, when measuring ECH against a trio of major China ETFs in 2012, one of two things become clear. Either it China is not moving Chile the way some think it does or it takes a while for iShares MSCI Chile Inv. Mt. Idx. Fd (NYSEARCA:ECH) to catchup to China ETFs. Either way, the iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI), the iShares MSCI China Index Fund (NYSEARCA:MCHI) and the SPDR S&P China (NYSEARCA:GXC) all sharply outperformed ECH last year.

Curiously, the correlations are not as intense as some may think. Using SPDR S&P China (NYSEARCA:GXC) as the barometer because it is home to almost 200 more stocks than iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI), providing a broader view of the Chinese economy, it is easy to see this ETF is not intimately correlated to iShares MSCI Chile Inv. Mt. Idx. Fd (NYSEARCA:ECH). Over the past year, the correlation between the two is 0.62, down from 0.79 over three years, GDP growth of 5.5 percent last year, a solid number considering China’s commodities demand was questioned for much of the year. Importantly, Chile sported a $1.5 billion trade surplus for December, which was prompted by increased copper demand, Reuters reported.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!