- In Santiago we met with a number of companies across a broad swathe of industries. Interestingly, most of the companies expressed ambitions to expand outside Chile; most are considering opportunities in the other Andean nations of Peru and Colombia, but some are also planning expansion in Brazil, Mexico and further afield. We were impressed that most of the companies were expanding cautiously, with restrained and realistic capital expenditure plans and sufficient capital.
- Despite Chile's small size - its population is only 17.5 million - it may be poised to grow faster than many of its regional peers. Chile enjoys low inflation and stable macroeconomic policy, both byproducts of the country's complex history. Corporate governance, regulation, and financial accounting are held to high standards.
- Beyond this stable backdrop, the country enjoys two unique advantages that distinguish it from its regional peers: Chile is blessed with large deposits of many scarce and valuable resources; and the country employs a mandatory savings scheme that provides a sizeable, liquid pool of capital that fuels the country's public and private investment programs. The country's unique resource base and pool of savings have provided a substantial degree of insulation from Europe's woes and slow growth elsewhere.
- One illustration of Chile's wide competitive advantage in rare commodities came during our meeting with a natural resources company in Santiago. We were informed that the company is able to deliver the raw material to port, ready for shipping and fully depreciated, at a cost that is 50% lower than its foreign competitors’ marginal cash cost at the “mine mouth” (the point of extraction). By the time competitors factor in depreciation and transportation costs to the port, their costs are well over double that of the Chilean company.
- Chile's small size and considerable distance from the U.S. may actually work to the benefit of some of its domestic companies. Such companies, while familiar with the challenges of global competition, have nonetheless been spared the searing competition that would come with greater proximity to the U.S., such as we regularly observe in Mexico. This distance appears not to have dulled the competitive edge of the Chilean companies in any material way, but rather given them room to develop and grow, all while preserving reasonable margins that have not been overrun by intense competition from multinationals. Frankly, the market environment is quite similar to Australia, at least in that regard.
Santiago
- The views and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect the writer's current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the portfolios or any securities or any sectors mentioned herein. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Seafarer does not accept any liability for losses either direct or consequential caused by the use of this information.
- Kate Jaquet is a Registered Representative of ALPS Distributors, Inc.
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