Domestic demand has been improving, helping the Chilean economy prove somewhat resilient, and the country has the advantage of a $15 billion sovereign wealth fund.
At the domestic level, there is at least one primary risk to Chile’s internal consumption ambitions. Since the government does not provide its employees with the types of grandiose pensions that are so common in the U.S. and Western Europe, Chileans are savers. The country has a mandatory savings plan in place for state workers, leading to one of the highest savings rates in the world.
However, those additional deposits are good for Chilean banks. iShares MSCI Chile Inv. Mt. Idx. Fd (NYSEARCA:ECH) devotes 18.4 percent of its weight to financial services name and in Chile that is not a bad thing as the country is home to arguably Latin America’s most advanced, regulated, sophisticated and transparent banking sector.
Another potential sticking point for some is ECH’s premium valuation. The MSCI Chile Investable Market Index trades with a forward P/E of 16.2 making it the second most expensive South American Index behind the MSCI Colombia Index.
Brazil, the region’s largest economy, but the true ETF laggard as measured by the iShares MSCI Brazil Index (NYSEARCA:EWZ), trades with a forward P/E of just 10.5 on the index tracked by EWZ. Inexpensive equities have lured some to EWZ in recent weeks, but even a 7.14 percent increase in the past month for that ETF trails iShares MSCI Chile Inv. Mt. Idx. Fd (NYSEARCA:ECH) by 90 basis points.
This article was originally written by The ETF Professor, and posted on Benzinga.