Two stocks for adventurous investors

If you're looking to put your money into a country that really understands fiscal responsibility, head for Chile. John Stepek explains why, and tips two stocks that should appeal to the adventurous investor.

What an awful Budget that was.

Chancellor Alistair Darling's pie-in-the-sky forecasts for a resurgent economy in 2011 are believed by virtually no one. A downgrade to Britain's AAA-credit rating is now increasingly possible. Scores of wealthy people are checking out their emigration options, held back only by the hope that the 50% tax rate will be reversed by a new government come next year's general election.

The Telegraph lists a number of places they might consider going all the usual suspects including New Zealand, Canada and Australia are there.

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But if they're looking for a country that really understands the meaning and importance of fiscal responsibility, they might want to try somewhere a bit off the beaten track.


Chile can teach us a thing or two about economic management

We mentioned Chile in last week's Money Morning on Latin America's growing taste for beer. But it's worth taking a look at the country again. Because not only are its brewers doing good business, it also holds some valuable lessons in economic management for the rest of the world.

Chile's enviable fiscal position came to wider notice certainly in the UK - just last month, due to an embarrassing experience Gordon Brown suffered when he went on a pre-G20 tour of Latin America. At a joint press conference, the Chilean President, Michelle Bachelet, said that "during the good times" her country had "decided to save some of the money for the bad times" which meant they could now afford to splash out on a fiscal stimulus without sinking the country into massive debts.

Back in Britain, rival politicians roared with laughter at Mr Brown taking economic lessons from a Latin American country. But he could do far worse. As Justin Vogler puts it on, Bachelet's policies mean that Chile has "so far weathered the international economic crisis better than most other countries, and this despite plummeting commodity prices."

Chile's economy is expected to grow by just 0.1% this year, according to the International Monetary Fund. Local analysts are more gloomy, predicting a fall of 0.5%. But that's not bad at all for a country whose main export is copper particularly when most of the developed world is already deep in recession. And growth is expected to rebound strongly next year something which actually has a decent chance of happening, unlike Mr Darling's rose-tinted view of Britain's future.

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Good fiscal management really isn't that hard

Chilean finance minister, Andres Velasco, is one of the men to thank, reports Bloomberg. He took advantage of soaring copper prices over the past couple of years to build up a fund of nearly $50bn, about a third of the country's GDP, via the state-owned copper producer, Codelco. In 2007, the country became a net creditor (i.e. it was owed more than it borrowed) for the first time since independence from Spain in 1810.

Decent economic management is not brain surgery, any more than running a household budget is hugely complicated. As Mr Valesco tells Bloomberg, "You save in times of abundance, and you invest in lean times." But there's a problem. It might be straightforward, but during the good times, it's not popular. Being tight with public money is not something that voters tend to appreciate, especially not the special interest groups who are always keen to soak the government and other taxpayers for all they can get. As late as last November, reports Bloomberg, government workers were striking for higher wages and burning Velasco's effigy in the Chilean capital Santiago.

Of course, now that the money is available and being used for "tax cuts, subsidies and cash handouts to poor families," at a time when the rest of the world is panicking about debt levels, Mr Velasco is very popular indeed. But getting to that point takes the kind of guts, conviction, and elephant-like hide that Western politicians and central bankers seem to lack.

Two Chilean stocks to buy now

So given that Chile seems to be in a better position than most, should you be investing there? Well, these are hard times for everyone. A global recession is still a miserable environment for any company in any country to be operating in.

But if you feel bold, and want to increase your exposure to Latin America, there's the brewing company we pointed out in last week's Money Morning. And as Martin Hutchinson points out on the US version of Money Morning, there are some other interesting Chilean stocks quoted on the New York Stock Exchange. Two of his favourites are CorpBanca (NYSE:BCA) Chile's fifth-largest bank and "its most consistently profitable", which has a dividend yield of around 9% and Lan Airlines (NYSE:LFL), which provides both Chilean domestic and international flights, and is "well worth a little investment for the adventurous".

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John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.