Chile offers more than mining and resources says Templeton’s Mobius

Chile is a world leader in copper production but a stable economic environment and fast growing consumer and manufacturing sector make offer additional opportunities for foreign investment, according to Mark Mobius, executive chairman, Templeton Emerging Markets Group.

Chile’s copper exports have increased substantially over the last decade, from 37% of total exports in 2003 to 54% at the end of 2012, mainly as a result of higher copper prices, and Mobius does not expect any change on this front, given consistently high copper prices

“However, the mining sector in Chile is less important from an employment perspective, as the sector only accounted for 3.4% of total employment at the end of 2012,” he explained in a note following a visit.

“Chile maintains leadership positions in several areas besides copper, including the production of pulp, salmon and specialty chemicals. Many Chilean companies have used their strong domestic position to expand regionally, for example, in industries such as retailing, beverages, IT services and pharmaceuticals.”

“Chile also appears attractive from our perspective as companies listed on the Chilean stock exchange have to pay an annual dividend of at least 30% of net income.”
He cites a meeting with a Chilean beverage firm which is expanding through the region.

“The company reported strong profitability, but also managed to maintain a very conservative financial profile. Over the last few years, it had consistently paid a high dividend while simultaneously expanding its business. All these factors were signs, in our view, of a fundamentally solid business.”

He said Chile was constantly wresling with the challenge of low energy resources. With very little oil and gas exploration and production capacity, the country has to import nearly all of its fuel, mainly in the form of crude oil, diesel and liquefied natural gas.

Another risk is natural disasters, particularly related to seismic activity. Chile has experienced some of the strongest earthquakes in recorded history: Valdivia (in 1960, measured 9.5 on the Richter scale), Algarrobo (1985, 8.0) and Concepcion (2010, 8.8).

“These risks, however, do not dampen our positive view of the investment climate in Chile overall,” said Mobius. “The country’s fundamental and fiscal strengths have meant that it has the highest sovereign rating in the region (Aa3 by Moody’s and A+ from S&P’s) and is a net creditor. Given its economic stability and investor-friendly climate, we intend to continue to explore opportunities in Chile.

The country established a domestic private pension fund system in the 1980s and has since built up a considerable capital base. As of 31 January 2013, it had some $170bn in assets, or more than 60% of GDP. A fiscal rule requires that proceeds from above-potential GDP growth and above-average copper prices to be put into sovereign wealth funds has boosted assest under management in those funds to some $21bn.

Chile joined the OECD in 2010 and is one of the group’s only two Latin American members (the other is Mexico). It has trade agreements with nearly all major trading blocs and countries, including the US, the European Union, China, Japan and India.

“It is interesting to note that over the past decade, exports to the US increased while those to Europe proportionally decreased,” said Mobius. “Even more notable is that, over the same period, China rose to take a greater share of Chile’s total exports (from 9% to 18%) while exports to Argentina dropped substantially (19% to 7%).”

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