Chile Climbs the Fiscal Mountain

The United States' debt woes have many investors wondering: Which countries are in great fiscal shape, and where are the opportunities for investment in those countries? I recently ran a macroeconomic screen in Excel, using data from the home page of Trading Economics, to take a stab at this question. I ranked more than 160 countries by the following parameters:

  • Debt to gross domestic product -- lowest to highest
  • Total GDP in U.S. dollars -- highest to lowest
  • Year-over-year GDP growth
  • Jobless rate -- lowest to highest
  • Inflation rate -- lowest to highest

When running screens like this, you'll usually end up with some outliers that need to be tossed out. For example, it turns out that Libya sports a clean debt-to-GDP ratio of 7.8% -- I'm just not ready to invest there yet. Further, several oil-rich Middle Eastern countries showed up near the top, but their economies tend to be monolithic, and they didn't pique my curiosity.

One result that did warrant a double take was Chile, the long, narrow country running along the Pacific coast of the South American continent. Soak in Chile's stats for a moment:

  • Debt to GDP: 11.2% 
  • Total GDP in USD: $249 billion
  • GDP growth year over year: 5.7%
  • Jobless rate: 6.6%
  • Inflation rate: 2.9%

For every Chilean peso of economic output, the country owes only 11.2%. Compare this to our sadly overleveraged 103%: The U.S. now borrows $1.03 against every dollar our economy generates. At $249 billion in GDP, Chile has room to grow. And its economy is expanding at a brisk but sustainable rate. According to a recent Bloomberg article, not only is Chile one of the 10 fastest-growing economies in the world this year, but it is also on pace to become the first country in South America to reach "developed nation" status before 2018.

Chile also holds the highest sovereign credit rating in South America, and as for trade, it is fond of boasting that it has the most free-trade agreements of any country in the world (58 and counting). Chile is steadily and confidently climbing a fiscal mountain. For as much promise as the vast Brazilian economy shows, it can't match its continental neighbor in terms of sheer economic efficiency.

If there is one risk investors should be aware of, it is the importance of copper to the Chilean economy. Chile is the world's largest exporter of copper: The metal accounts for 60% of Chile's total exports. China in particular has been a voracious copper customer for several years. However, further economic slowdowns in China and around the world could affect Chile's growth rate.

There are several attractive Chilean stocks that trade as ADRs. In the coming days I'll be looking at three in particular.

Enersis  (NYSE: ENI  )
One of the largest power companies in Latin America, Enersis has a market capitalization of $11.37 billion, trades at 10.81 times forward earnings, and pays a dividend yielding 3.2%. Enersis is nicely diversified, with significant operations in Chile, Brazil, Columbia, Argentina, and Peru. It has a lower price-to-book ratio (0.82) and a lower debt-to-equity ratio (0.52) than many international peer utilities. These characteristics, coupled with the generous dividend, make Enersis worthy of long-term dividend investors' attention.

Banco de Chile  (NYSE: BCH  )
The second-largest banking institution in Chile, Banco de Chile has more than $48 billion in assets. The company has paid consecutive dividends since 2002, and the current dividend yield stands at 3.1%. The company's stock has performed nicely in 2012, returning more than 17%. The bank maintains a balanced loan portfolio, divided in half between its retail segment (individuals and small- and middle-market businesses) and its wholesale segment (larger corporations and institutions). Banco de Chile is a stable, well-run alternative to better-known but riskier international banking stocks.

Embotelladora Andina  (NYSE: AKO-B  )
Known more popularly as Coca-Cola Andina, this company is the second-largest Coca-Cola bottler in South America and the seventh-largest in the world. Coke plans to invest $1.3 billion in Chile over the next five years. Part of this spend is a $200 million investment in Coca-Cola Andina's latest bottling plant, which opened last month in Renca, Chile. Coca-Cola Andina distributes Coke products, fruit juices, and bottled water in Chile, Argentina, and Brazil. It also sells popular beer brands such as Amstel and Dos Equis in the fast-growing Brazilian beer market. While the stock has enjoyed a banner year, up 47% on a total-return basis, these shares have much potential over the next several years as the company further capitalizes on the notoriously sweet South American tooth.

We'll take a closer look at each of these companies in the following days. Dividend investors who are attracted to the companies above should also check out our report on three great U.S. dividend plays: "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so just click here and get your copy today.


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