by Nicholas Vardy, editor The Global Bull Market Alert
This week's Global Bull Market Alert recommendation, the iShares MSCI Chile Investable Market Index (NYSE: ECH), is a high-risk bet that Chile's stock market will weather the devastation of the earthquake just fine and resume its already strong upward trend.
The market will very likely be weak near term because of the general level of uncertainty and concerns over damage to infrastructure. Looking back a few weeks from now, I believe this will represent a buying opportunity.
First, here are a few words on the current state of play. Chile's capital, Santiago, and home of Chile's stock exchange, is located about 200 miles northeast of the quake’s epicenter and has avoided the worst of the disaster.
Although initial estimates of damage are running as high as 15% of GDP, these tend to be exaggerated in the heat of the moment. Scenes of devastation notwithstanding, it's important to remind yourself that Chile is not Haiti.
Chile is arguably the most economically successful and, on a per capita basis, the wealthiest country in Latin America. Utilities such as Endesa Chile in Santiago will suffer the biggest impact because of power outages.
Santiago-based pulp manufacturer Empresas CMPC SA may be affected because of the proximity of its operations to where the worst of the earthquake was felt. Lan, Chile’s national airline, may fall as canceled flights hurt revenue. But these should all be short-term concerns.
And Chile has been a star this year among emerging markets, up 6.9% this year, the top performer in Latin America, even as the overall MSCI Emerging Markets Index has dropped 5.4%.
Bottom line? Chile may sell-off today or even in the next few days. But I believe that Chilean equities will soon find their feet.
So grit your teeth, and buy the iShares MSCI Chile Investable Market Index ETF. Place your initial stop at $49.00, just below a level it last hit in December. Full disclosure: this is a position I intend to take for my clients at Global Guru Capital.
Learn more about this financial newsletter at Nicholas Vardy's The Global Bull Market Alert.
