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Latin America’s Chile: A Top Stock Market Performer

March 25, 2010 by  

Latin America’s Chile: A Top Stock Market Performer

Headlines around the world are full of news about the aftermath of Chile taking a big hit Feb. 27 with a magnitude 8.8 earthquake, the fifth-strongest ever measured in the country. The good news is Chile’s capital, Santiago, is located about 200 miles northeast of the quake’s epicenter and avoided the worst of the disaster. The airport had resumed operations and several shops were open for business on the Monday following the weekend earthquake. In addition, the Chilean stock market was back online March 1 without a hitch.

Indeed, iShares MSCI Chile Investable Mkt Idx (ECH) jumped 4.46 percent during the week following the earthquake, as the powerful temblor barely registered as a blip on Chile’s stock exchange. Chile’s stock exchange proved to be as robust as most of Chile’s rigorously constructed buildings.

Chile: Free Market Reforms + Discipline = Economic Success
Unlike Greece or other countries on Europe’s periphery, Chile has been a model for how a small developing country should conduct its economic affairs. This country of nearly 17 million people, with an economy about the size of Alabama, is arguably the most economically successful and certainly, on a per capita basis, the wealthiest country in Latin America.

Understanding the reasons behind Chile’s economic success can help you identify other countries in the world that are getting the basics right—and, like Chile, are the source of stock market profits that put the United States S&P 500 to shame.

Despite its impressive achievements, Chile’s success has been a quiet one, with few countries seeking to duplicate the “Chilean Miracle.” Chile first introduced free market-oriented reforms with the help of the “Chicago Boys”—a group of University of Chicago-trained economists—during the bad old days of August Pinochet’s military government in the 1970s. The first democratic government of Patricio Aylwin—which took over from the military in 1990—continued with these economic reforms, as have successive governments since then. The impact of these reforms became crystal clear as Chile’s economic growth rates began to outpace that of its Latin American rivals virtually overnight.

Chart for iShares S&P Latin America 40 Index (ILF)

Chile’s growth in real gross domestic product (GDP) averaged 8 percent during the period 1991-1997, rivaling that of the Asian Tigers. Although it fell to half that level after the Asian financial crisis in 1998, Chile’s economy recovered, boasting growth rates of 5 percent to 7 percent for most of the past decade—considerably outstripping growth rates in neighboring Brazil. By 2006, Chile had the highest nominal GDP per capita in Latin America. And recently, it was the first Latin American country to join the Organisation for Economic Co-operation and Development (OECD), an exclusive club of “developed nations.”

What’s most impressive about Chile is that it has stuck to its reforms through thick and thin—a discipline that is sorely lacking in recent U.S. administrations. After being elected in 2006, President Michelle Bachelet took a lot of flack when she failed to succumb to pressure to spend Chile’s windfall earnings from high copper prices. The “Great Recession” of 2008 and 2009 revealed the wisdom of her policies. When the global financial crisis set in, government coffers had the cash to implement one of the world’s largest stimulus plans. The ant prevailed over the grasshopper yet again.

Skeptics point out that for all the importance of free-market reforms, Chile wouldn’t be this far along without its huge reserves of copper. Copper accounts for about one-third of the government’s revenue and, as the world’s third-biggest producer of copper, even a small stumble in Chile’s copper production due to the recent earthquake sent global copper prices soaring.

But ideas do matter. What copper is to Chile, oil is to Venezuela. Yet, Venezuela is an economic basket case. Contrast the economic fates of Latin American countries that invoked the name of Che Guevara (Cuba, Venezuela) with the economic views of Milton Friedman and the “Chicago Boys” (Chile) during the past 40 years and you can see why Chile has become a poster child for free-market reforms. As the late, great Jim Rohn observed, “People aren’t building rafts to escape to Cuba.”

Chile: Consistently Hot
While most global stock markets go in and out of fashion, Chile has been the single most consistent performer among all global markets over the past decade. It has ranked as the third-best performing market in the world for each of the last 10 years, three years and year-to-date.

Sadly, U.S investors did not have a chance to profit directly from the Chilean index’s performance until the launch of the iShares MSCI Chile Investable Mkt Idx (ECH) in November of 2007.

But had you invested $10,000 in the iShares MSCI Chile Investable Mkt Idx (ECH) on the date of its launch on Nov. 20, 2007, you’d be sitting on $12,001—a solid 20 percent gain. Had you invested that same amount into the S&P 500, you’d have only $8,685. That’s a remarkable 38 percent difference over the span of only 27 months.

iShares MSCI Chile Investable Mkt Idx (ECH)

Chile also has been a star this year among emerging markets, up 6.9 percent so far, the top performer in Latin America, even as the overall MSCI Emerging Markets Index has dropped 5.4 percent.

Bottom line? Chile may sell off briefly after the devastating earthquake but I believe that Chilean equities will recover soon and will continue to be among the top stock-market performers for the coming decade.

—Nicholas A. Vardy
Editor, The Global Guru

Nicholas Vardy

is best known for his unique expertise in global investing. He is the editor of Global Bull Market Alert, Global Stock Investor, and The Global Guru, a free weekly e-letter with more than 165,000 subscribers, all published by Eagle Publishing. He is also CIO of Global Guru Capital (www.globalgurucap.com) and founder of the London Junto (www.londonjunto.com), a regular gathering where leading London hedge fund managers meet to debate the top investment issues of the day. Mr. Vardy has been quoted in the Wall Street Journal, Newsweek, Investors Business Daily, MSN Money Central, AOL, Yahoo Finance, and CBS MarketWatch. He has also been regular contributor to the Fox Business Network and CNN International. He is a Chartered Financial Analyst and a graduate of Stanford University and Harvard Law School as well as a former Fulbright scholar.

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  • s c

    Kudos to Chile. However, here some suggestions to help them avoid messes similar to ours. First, if you have methods that WORK, tell your politicians to go to hell. Second, shun ‘foreign’ advisors who come armed with cash or promises – as long as you admit to seeing the ‘big picture’ and you’re willing to do ‘what you’re told’ by those anointed advisors. Third, be ready to put every major religion in its place (they can make no waves, and exert no ‘divine’ pressure via politics). Last, consider the ant – and see the grashopper for the anarchist and useful idiot that he will always be.

  • Golferbug

    Oh how I wish that America could be like Chile and start over again. Is Chile a religious country? If it is,
    don’t let others persuade you to think differently. Let your conscious be your guide, not greed and power which is what happened in America.
    Best of luck to a country that might be the glowing foundation for common sense in our hemisphere which is currently lost. Don’t let your neighbors corrupt you.

  • ada mickiewich

    Chile: Free Market Reforms + Discipline = Economic Success
    see that second part DISCIPLINE is missing here by us

  • Peter Carminati

    Obama is America’s “Chavez.” The coming elections in November is the last time that We the People can take back our country and rid ourselves of the Obamatrons destroying us from the inside out.

    • denniso

      Who exactly are your, ‘we the people’??? Do you mean the rightwing gun nuts who threaten violence and spew hate like their leaders do?
      Hate to tell you this,but that’s a small part of our country…most Americans shun the fearmongering tactics of the rightwing.

      • Hello?

        I am afraid your blindness will be awaikened before too long, you have no clue what is about to overtake you. You may not believe the Christian Bible right now and hate those right wingers as you call them. There are many sects of people in this country and most have their own view created within themselves and Satan very easily blinds those that do not posses the spirit of Christ. The book says that there will be few that find it. You have been decieved, although you do not know that as of yet but those that you are now trusting will be the only gun toaters and you will be at their mercy. The buzzards will be gorged on the flesh of the un-believer. I pray that God will have mercy on your soul.

        • s c

          Hello, are we supposed to think the half-assed, fear-mongering tactics of far-left retards are divine and infallible? That individual needs to look in a mirror once in a while.
          That individual must rely on the lamestream media for news. Fear-mongering is a valuable asset in politics. America has been manipulated by this weapon for decades. It went into high gear with FDR. It has since been re-energized by Obummer and his NWO, hate-America-first sleazoids.

          • denniso

            You two need some professional help…you’re off the edge of sanity…

          • Hello?

            Whatever! SC, maybe one day I’ll be as intelligent as you seem to think that you are. Guess you think that you are going to live forever and if you die , you will just be dead. Far be it from me to try to cinvience anyone, it is your choice. You’re right, I am a nut, just forget I said anything. Norrow minded people in their narrow minded way. Good luck! Hope you and Satan have a good time together.

  • http://URL helena

    We should adopt Chile’s way of life. WE HAVE THE CAPABILITIES Of TURNING THIS THING AROUND AND BE SUCCESSFUL AGAIN. It’s SHAMEFUl that such a amall Nation like Chile has done so well in the economy. Even after such DEBASTATING EARHTQUAKE, this Nation will recuperate very fast. There’s no DOUBT IN MY MIND! KUDOS TO CHILE!!!! They have a Gov’t that EMBRACES & RESPECTS the INDIVIDUAL’s FREEDOMS, that’s why they’re SUCCESFUL!Allowing “ONE TO BECOME THINKERS & INNOVATORS” helena

  • http://URL helena

    Lets not forget what took place in Chile’s Gov’t in 1973 when Salvador Allende was president & wanted to change their Gov’t to a SOCIALIST STATE, INFLUENCED by the relatioship he had w/the Dictator Fidel Castro and The General Pinochet entered ‘EL PALCIO DE LA MONEDA’ occupying & and taking over the Gov’t. He successfully ACCOMPLIHED HIS GOALS and that’s why Chile has BECOME A GREAT South American country! helena r

    • chuck b

      helena

      lets not forget the u.s.(demo progressive’s), (Communist)and news media.have not let up since pinochet took over chile in their quest to turn this country into a marxist govt.

      • denniso

        Do you really have to spout continual nonsense? Can you try to come up w/ real,adult criticism of our political system?

        • s c

          D, define nonsense. What is adult criticism? Assuming that they let you ‘leave’ high school (somehow), I’d like to know if you’re capable of carrying on an adult conversation.
          Progressives share many common traits, not the least of which is a closed mind and an obsessive need to parrot back what they’ve been taught by their masters. You do know how to act like a parrot.
          You seem to be comfy living in chains. Enjoy your voluntary slavery. However, do not expect the rest of America to accept your preferred brand of insanity. This is America. It’s tragic that you never appreciated it.
          Maybe Iran will let you move there. Be prepared to learn the language – and consider becoming a muslim.

  • eddie47d

    Chile cares about it’s people and the country thrived after Pinochet left office.The lesson should be that extremists on either side of the political equation can change a country and cause it’s collaspe or at least stagnation. Here in America capitalism got greedy,where a few got rich and many lost jobs. There were no controls or morality to stop this from happening so we lost a credible balance. This is where Chile is doing good. Obama is trying to rebalance America. If he goes too far left we could be damaged, just like the republicans went too far right. After the earthquake in Chile it’s new leader demanded that all looters return all stolen goods and most did. That should also be a proud moment for Chile and it’s integrity. I sure do love Chilean blackberries,give them a try.

  • DaveH

    So which of the two mentioned countries does Obama aspire to? Venezuela of course.

  • http://ordy@fedtel./net Eric g

    Whats a conservative socialist to do ? You will not be able to be a socialist too long if you are not conservative .

  • Karen

    I take it Helena knows nothing of economics. Every socialist/communist country that has ever existed on this planet has ended up in corruption and economic ruin. If America’s ruling party continues their socialist agenda, America will end up another ‘has been’ country along with Russia, Venezuela, Cuba,….

  • Ricardo

    Sept 11 , 1973 History was made in Chile. The Army came out of the Barracks and ended a Communist Government. Controlled by Communist Unions. General Augusto Pinochet turned the country around. Otherwise Chile would be like Cuba . a sub-third world . What Hussein Obama and his Progressive Democrats are planning to do to Our Country ( USA )I’m proud to say I was there in Santiago,Chile on Sept 11,1973. Long Live The Nation Of Chile Free People.

    • chuck b

      ricardo

      people have short memories or maybe not old enough to remember what happened in chile. the liberals in this country had nervous breakdowns when allende’s communist government was overthrown. the liberal democrats investigated itt and broke up att for the affiliation they had with the pinochet government and the news media never let up on pinochet.the communist don’t lose easy, they get even.

      • s c

        Chuck B, if you’re a dedicated history student, you
        should be aware of ‘religious influences’ that tend to be extremely secular, and are not at all religious. These apostate forces have wreaked havoc in many countries (especially since 1860). Due to what passes for ‘education’ in the US, many Americans want to believe that no religious ‘faith’ can be other than good.
        Sadly, that is not true. This is why I hope Chile can protect itself against what amounts to domestic terrorism via “religion.” America’s present situation is due in no small way to false religious influences that are political in the extreme, and have nothing to do with God or ‘good’ or ‘proper.’

  • eyeswideopen

    http://www.freshplaza.com/news_details.asp?id=59713

    Don’t know why the heritage site didn’t pull up. Sorry It had great info on Chile.

  • DaveH

    We did have a pretty neat country here until the Republicans decided to save everybody from themselves, and the Democrats decided to spend other peoples’ money as if it were there own.

    • DaveH

      I know, I used there instead of their.

  • theodore malnick

    DEAR WORLD ,WHEN YOU VISIT CHILE ,MAKE SURE YOU TASTE THEIR FOOD ITS DELICIOUS AND THEIR FRUITS LIKE BLACKGRAPES AND BLACK CHERRIES AND OTHER ITEMS WOW !!!! RELIGION YES GREAT CHURCHES TOO ,REAL GOD FEARING PEOPLE AND HARD WORKING ,HONEST TRUST WORTHY !!!!!! MAN CAN THEY LAY OUT A FOOD SPREAD AT A FESTIVAL , AND ENTERTAINMENT THE BEST!! THEY SURE CAN TEACH USA ABOUT LIVES AND LIVING FREE!!!!!!

    • s c

      Theodore, for Chile’s sake, I hope you’re right. That is, if they’re truly God-fearing people there (as opposed to what has happened here), then Chile has a good chance to do what America could have done.
      In no small measure are our problems due to apostate religions (yes, I mean major religions). Many years ago, it was hard to tell the difference between con artists and most ‘religious leaders’. It is much worse now, and it will get worse before it can get better.
      Because we all but have surrendered to elected career criminals, greed in high places, lawyers and judges who should be in prison, indifference, stupidity and apostate religious leaders and faiths, America can look forward to learning lessons that old Israel learned long ago.

  • http://www.personalliberty.com/news/pediatric-patients-with-chronic-pain-look-to-acupuncture-19609231/ James A Graham

    ——-Original Message——-

    From: James Graham

    From: S STEELE
    Subject: FW: Proposed 28th Amendment to the United States Constitution

    As a widow of a military retiree, who stood with her husband for over 20 years while he served this country (which was the greatest in the world until this Congress and President took over), I have to say I agree. Shirley

    As a retired military man that have given over twenty-seven years of my life to my country, I truly feel that what this
    Country needs most is a new amendment to the Constitution . I am recommending that we add the 28th amendment to the Constitution of the UNITED STATES.

    For too long we have been too complacent about the workings of Congress. Many citizens had no idea that Congress members could retire with the same pay after only one term, that they didn’t pay into Social Security, that they specifically exempted themselves from many of the laws they have passed (such as being exempt from any fear of prosecution for sexual harassment) while ordinary citizens must live under those laws. The latest is to exempt themselves from the Healthcare Reform that is being considered…in all of its forms. Somehow, that doesn’t seem logical. We do not have an elite that is above the law. I truly don’t care if they are Democrat, Republican, Independent or whatever. The self-serving must stop.

    This is a good way to do that. It is an idea whose time has come, Jim.

    Proposed 28th Amendment to the United States Constitution:

    “Congress shall make no law that applies to the citizens of the United States that does not apply equally to the Congressman, Senators and Representatives; and, Congress shall make no law that applies to the Congressman. Senators and Representatives that does not apply equally to the citizens of the United States”.

    This 28th amendment to the Constitution of the UNITED STATES Will apply to all passed, present and future
    congressman, Senators And Representatives.
    Just think how must money this action would save the tax payers!!!!!

    HTCM USN Retired James A. Graham E-Mail address is ( jagraham@charter.net ) Please forward !!!!!!!

  • Deirdre

    If all of you so-call Americans were more God like this country would appear great… your hearts fill with evil intentions … your sick prejudices that have you blinded to any good or true … you folks are the unholy disciples evil….DO YOU REALLY BELIEVE GOD WOULD be in FAVOR of YOUR ideas … God Bless President Obama and protect these
    United States from folks like you all …

    • s c

      You are right to pray for him, Deirdre. However, pray for him because he is supposed to be our leader. Soon, you will learn that he is anything but a leader, and that the truth is not in him.

    • DENNIS

      May I enquirer what your version of good and God-like is?

      Do you support a more Socialistic America?

      Do you believe that the good things about America are Social Security, Health care, Medicare, and Medicare?

      because you need to understand that the congress and the president do not make the money: they take it from us and give it to others, and these programs are growing and going broke. If i took something from you and gave it to someone else I believe that would be called Stealing.

      As for freedom and free trade and the free market. We had and still have some freedom. and yes God likes the idea of freedom, that is why you have free will…

      God loves us enough to let us make our own choices, The Govt. wants to dictate how we live. kind of opposite what God does…

      The constitution of the United States was meant to limit Govt. not people. And if the schools taught history and civics the whole country would be more in an uproar about what just happened here in the USA,

      Keep in mind the Health care Bill came to be by bribes and coercion, sweet heart deals, These things do not seam God like in fact they were so the opposite that they were done in secret.

      Health insurance is not being given to us, it will not be free, in fact the prices will rise.
      what the Govt has done is taken away your freedom to choose weather you wanted to buy or not buy insurance. and soon they will start to force people to have insurance, and force others to supply it, and for those who do not want to work for it others will be forced to pay more to cover these people.

      Just because you have health insurance does not provide you with better health care, what it does is spread the cost around more, so those who are never sick and do not go to the Doctor will now have to pay for those who do.

      And careful of he who promises you the world, I believe that in a desert a long time ago a man named Jesus was tempted by a stranger who offered to free him of his pain and suffering and offered him the world…believe me this kind hearted stranger was no God he was the devil. Not all things you think are good hearted are pure. And had Jesus accepted the kindness of this devil he would have been a slave to the devil for eternity.

  • http://www.alternativelatininvestor.com mary

    Economic Revival In Chile

    New construction at Chile’s stalled Costanera Center, the unfinished 984 foot tall tower in the heart of Santiago’s gleaming financial district, is a highly visible reminder that even though the country‘s economy was rocked off course by the 2009 global financial crisis, in 2010 the country’s economy is already starting to recover. A billboard hanging in front of the $US600 million skyscraper, a development that is overseen by Chile’s Cencosud S.A., announces that the project is an “icon of Latin American development.”

  • Bob Wire

    Chile when through years of social and economic strife to get where they are today ~ it was not easy or without great cost and suffering, consuming many innocent lives.

    It’s interesting to note strong leaders are both loved and hated. So we shouldn’t expect everyone to throw roses.

    People’s ideas of freedom vary, a bird in a cage is free from outside threat.

    Walls imprison and protect status quo. ~ China fell from within as I remember.

    These are all ideology notions and fun to contemplate, for now the pragmatist best serves Americas needs. For much like Chile has been in the past, we are way off course.

  • SiliconDoc

    Good when it drops down and bottoms out due to the earthquake, but it up.
    Never heard this Chile story before. I’ve heard the libs whine and shriek Pinochet, though.
    I guess the msm has kept the dark neocon right secret well.
    Couldn’t have any republicans, conservatives, or Miltons looking good, that would tend to sour the commie lib progressive vision of their hanging sugarplum fairytale.

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