Chile's hot stockmarket is set to cool
Jan 22, 2010
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Chile's benchmark IPSA index has started 2010 with a bang. Having gained around 50% last year it has kept setting new records, with the latest uptick following the election of the centre-right tycoon Sebastian Pinera. He is promising to raise Chile's growth rate to 6%, double the average of the past ten years, by cutting red tape and lowering taxes on small businesses.
The improving economy, underpinned by recovering commodities (Chile produces 35% of global copper output) has fuelled market gains. After dipping by almost 2% in 2009, GDP growth is expected to rebound to around 5% in 2010.
But market upside from here looks limited. The political context is unaltered, as "there isn't much of a difference between the major parties", says Bill Rudman of Blackfriars Asset Management.
Chile has "great" firms, but they're now "expensive", with the IPSA on a p/e of 23.4, compared to 19.6 for Latin America as a whole. Stocks yield less than 2%. That makes them vulnerable to a poor global recovery, which would hit commodities prices.
Citigroup reckons the index will only reach 4,000 this year, around 5% above current levels. The IPSA has already reached Morgan Stanley's 2010 year-end target of 3,800.
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