Chile Grows Up

Chalk it up to mineral wealth and a rapidly expanding middle class – Chile has been the hottest economic stories in the world for two years running.  And now, the Chilean stock market is growing into its new found prosperity with a relatively massive slate of IPO and secondary stock issuance on the way.

From beyondbrics:

This year, the trend-setting could continue in terms of the pace of offerings. A flood of more than $9bn in issues – including secondary offerings and IPOs – is expected this year, and it is likely to be one of the biggest years in terms of issuance that Chile has ever seen.

The IPO party is set to start next month, with a $400m issue by pharmaceuticals firm CFR Pharma (the stock debuts on May 5) and salmon farmer AquaChile’s $350 IPO during the month as well. Healthcare provider Cruz Blanca is planning a $200m deal in June, according to brokerage Celfin Capital.

In all, there could be at least six to 10 issues if market conditions allow…

The main way investors play Chile is with the country ETF, ticker is ECH ($900 million in AUM).  It is predictably loaded with banks and miners.  Unfortunately, the average PE ratio across components is almost 23, this compares with a world average of 15.  There is a higher growth rate in the nation which justifies some premium multiple but there are other concerns here as well.

What keeps me from going all starry-eyed over Chile and a lot of these Latin American stories is the threat of inflation.  Brazil, Argentina, Chile et al have all had their share of major inflation battles overs the decades.  This time around they appear to be getting out in front of it, especially Brazil.

A screaming hot stock market with high average PE ratios headed into a tightening cycle is not my cup of tea so I am playing cautiously.  Still, keep Chile on your radar if you’re a long-term investor and pick your spots.


Chile: IPO party set to start next month (beyondbrics)