Chile ETF Rallying On Copper, China Growth

Includes: CCXE, ECH, EEM
by: Tom Lydon

An ETF indexed to Chile, the world's largest copper producer, has climbed 9% the past three months on a rebound in the commodity's price and a resurgence in China's economy.

The performance of the iShares MSCI Chile Index (NYSEARCA:ECH) is tied to copper, and Chile is a top supplier of the metal to China.

"ECH's underperformance (last year) may have been due to concerns about declining demand from China, which saw its economy slow. Chile sells a lot of copper to China. This week Beijing reported that GDP grew at a greater-than-expected 7.9%," Roger Nusbaum wrote for The Street.

Another important facet of Chile is that it is the only emerging market country that has privatized social security, Nusbaum reports. A portion of all working employees' paychecks goes into equity and fixed-income investments, creating a constant demand for Chilean equities.

ECH gained about 8% last year, compared to 15% for the broad-based iShares MSCI Emerging Market Index Fund (NYSEARCA:EEM).

The rise in copper prices is expected to be profitable for one of the largest copper exporters in the world, reports Bret Jensen at Seeking Alpha. The trade surplus is widening in Chile, and GDP growth is expected to post between 4.25% and 5.25% this year.

Furthermore, Chile is stable, has solid regulations and low levels of corruption, coupled with a particularly strong banking and finance sector, according to Jensen's report. It is one of the most advanced economies in Latin America.

"Chile's economy is home to the region's most sophisticated banking system, has thriving tourism and agriculture sectors and is one of the world's top producers of metals such as copper and iron ore," reports David Sterman for Investing Answers.

"Even as Chile's economy has advanced over the past three years, Chilean stocks have moved sideways, lagging U.S. stocks in the process. Blame it on the outsized impact of commodity prices, which have been range-bound in recent quarters," he added. Still, ECH, the Chile ETF, "holds great appeal for investors looking to capture the growth of Latin American economies."

Another ETF that offers exposure to Chile is the WisdomTree Commodity Country Equity Fund ETF (NYSEARCA:CCXE), which gives 12.2% of the portfolio exposure to Chile. The fund focuses on dividend paying companies in various countries.

iShares MSCI Chile Index

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.