Chile could spice up your 2010 returns

Ask many investors to name a big Latin American economic success story and they’ll pick Brazil. Which is one good reason why you should turn your attention elsewhere – to Chile.

The Chile IGPA General Index finished 2009 with its highest annual rise in 16 years – 47%. And plenty of that came towards the end of the year with the index closing at its best level for the year on the very last day.

What’s more, says investorsintelligence.com, the index moved back above its 500-day moving average in 2009 and “previous moves up through this average have typically lasted around five years, so the 2009 rally was just the start”. Further, Chile has been busy strongly outperforming the FTSE World Index too, and recently added to its international standing by becoming a fully-fledged member of the Organisation for Economic Co-operation and Development.

In a show of strength, the Chilean peso gained 26% against the US dollar in 2009. And while the US Federal Reserve keeps its printing presses on to cushion the US economy, Chile maintains the kind of economic stability that would turn many a European economy green with envy. For example, Chile’s current account balance is a positive 1.3% of GDP – that’s a trend that could well continue. Especially if Credit Suisse’s forecast of 5% GDP growth in 2010 is accurate.

The easiest way to play Chile’s small stock market (its total market capitalisation in US$ terms is about that of Wal Mart) is via the exchange traded fund ishares MSCI Chile Investable Market Index (NYSE: ECH). This fund offers a broad exposure to 34 stocks with around one third in the utilities sector.

Many emerging markets look toppy right now after some pretty heady gains recently. That’s a good enough reason to try out the region’s only truly stable economy.