Emerging market investors like Mark Mobius, executive chairman of the Templeton Emerging Markets Group, love Chile for all the things that it has done right over the years: “Chile's economic policies have emphasized a free and open trade and investment environment,” Mobius says. “In addition the country's fiscal management has been excellent … and [its] copper and other mineral reserves are important.”
Matt Hochsteter, an equity analyst and Latin American specialist at Janus Capital Group, is on the same page. He likes everything about Chile, from its macro and microeconomic policies to its wines. Yet Janus does not have a single Chilean holding in its emerging markets portfolio, he says.
“We are very positive on Chile from a macro point of view, so you’d think it would be the biggest position in our fund, but we are extremely valuation sensitive and Chilean stocks are just too expensive.”
Chilean companies are among the best in the emerging markets world, Hochstetler says. They are top brass, have excellent management teams and solid business plans. Yet they are also very costly when compared to companies of the same caliber in countries like Brazil, India and regions like the Middle East, where dividend yields are growing at a much faster rate and companies have far more growth potential ahead of them.
“I fully agree that Chile is a very attractive country, but we just haven’t found any opportunities as yet,” Hochstetler says. “It is a country that we want to monitor closely and I would love to own a lot of these companies, but we have learned through difficult markets that it is very important to be disciplined in valuation.”
Templeton’s Mobius believes that a diversified portfolio is always best since individual markets can be very volatile and good valuations in one market could change dramatically. “Generally speaking,” he says, “we are finding particularly interesting bargains in the so-called frontier markets such as Vietnam and Nigeria.”