Thriving Chile opens markets and woos investors in Europe

Chile’s finance minister Felipe Larraín, speaking to some 200 corporate and financial investors at the Lord Mayor’s Mansion House in London, has pledged that Chile will soon fully open its domestic fixed income market to foreign investors, a move many have been awaiting for a decade or more.

Chile’s equity market has long been accessible, with some 40% of the free float held internationally, and that proportion is rising as large cap domestic companies issue more shares. However, the government has kept a tight rein on domestic banks and the local debt market, fearing disruptive “hot” money flows.

“The decision to open the fixed income market in principle was actually taken in 2001,” explains Guillerme Tagle, director of inBest Chile, the group organising the mission to London. “But some rules have remained and in fact the market has not been fully open. Now that will change, and foreign investors will really be free to participate.”

He said the delay was because the country’s Congress or parliament had been preoccupied with other challenges, and many of the representatives did not consider such financial reforms a priority. However, some have been included in the investment mission to London, and this has helped them realise how important the measure is.

The spread between Chilean domestic debt and that of developed market indices is expected to narrow from the current 50 basis points on the back of the announcement, as investors in developed markets search for yield and security.

Further local tax reforms are also expected to boost foreign investment in the local equity market. Tagle says the strength of the latest investment mission is that together, the group has far more impact, and can make better use of time and contacts, than individuals acting alone. London also serves as a one stop shop, where managers can meet potential investors – from sovereign wealth funds to corporate partners – in one place, and using one language.

Tagle estimates that some 45% of Chile’s $150bn pension fund assets are now invested abroad, but notes an increase of foreign asset managers looking for investors in Chile. As well as his work for the non-profit agency InBest, he heads Santiago-based IMTrust, which facilitates distribution of funds from international product providers to Chile, Peru and Colombia.

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