Trying to find a safe haven in a world full of weak economies and dodgy government finances is not easy. Norway springs to mind, with its vast trade surplus, sound government finances and strong savings culture exemplified by its sovereign wealth fund. But could Chile also fit the bill?
Chile’s economy is in very good shape. It is currently growing at just over 5% a year. The country produces one third of the world’s copper and is running a trade surplus. Its government spends less money than it takes in while public-sector debt is less than 10% of GDP. The state pension system is based on high personal contributions and is well funded.
While the mining and industrial sectors currently dominate the economy, Chile is trying to diversify by wooing entrepreneurs with its own version of Silicon Valley. The country looks to have a lot going for it.
Admittedly, the Chilean stock- market has not had a brilliant year compared with other stockmarkets – the IGPA index is up 3.4% since January. Nor is the market particularly cheap, trading on a price/earnings ratio of just over 18 times and offering a dividend yield of 3.1%. But, for a safe haven, it’s not particularly expensive either.
If you don’t want to buy individual stocks, you can invest in Chile through an exchange-traded fund, such as db X-trackers MSCI Chile (LSE: XMCL). It holds a basket of 20 large- and medium-sized companies, with 60% of the fund invested in utilities and mining and industrial stocks.