Benefits and Risks of Investing in Chile

Aerial view of financial district at Santiago de Chile
••• Pablo Rogat`s Photostream / Getty Images

Chile is one of South America's attracts many investors, with a stable and prosperous economy. The country is well known as the world's largest exporter of copper. It's also the fifth largest exporter of wine and exports many agricultural, fishery, and forestry resources.

Key Takeaways

  • Chile is one of South America's largest and most successful economies. This makes it an attractive choice for international investors.
  • Chile faces several risks that investors should consider. Some of these include a lack of economic diversification, geopolitical risk, and lackluster corporate policies.
  • Investing in Chile can be easily accomplished with ETFs and ADRs. You can also purchase stocks directly from the Santiago Stock Exchange in some cases.

Benefits of Investing in Chile

There are a number of benefits to investing in Chile. It is highly regarded within the financial community as one of the strongest investment destinations in Latin America. With its significant exposure to commodities such as copper, the country has attracted a lot of foreign capital that has helped its economy grow. And, emerging minerals like lithium have helped keep the country's resources in demand.

Strong Performance

Chile was the first South American country to join the Organisation of Economic Co-operation and Development (OECD) in May of 2010. At the time, it had the highest nominal GDP per capita and highest competitiveness rating in Latin America, according to the Global Competitiveness Report for 2009-2010.

The Chilean business climate is rated by Michigan State University's International Business Center as having a low to acceptable level of risk with generally reliable and available corporate financial information.

In 2019, Chile imported just over $69.6 billion and exported $69.7 billion in goods and services, leavinga positive trade balance of $90 million. In July 2021, over 60% of Chileans had been thoroughly vaccinated against COVID-19, allowing for the reopening of the economy. The central bank eased up on expansionary monetary policy and began working to control inflation by changing the benchmark rate to .75%.

Vast Natural Resources

Chile is the world's largest exporter of traditional copper, and the second-largest producer of lithium that's used to power next-generation batteries. By some estimates, the country has about 51% of the world's lithium reserves.

Friendly Government

Chile's government is one of the richest governments in Latin America thanks to economic policies that promote growth and sustainability over the long-term. The government is also ranked equal (a score of 67 and rank of 25th) to the United States in the Corruption Perception Index maintained by Transparency International.

Risks of Investing in Chile

Investment in Chile involves risks that are specific to the country. For instance, the country's reliance on external copper prices may negatively affect its economy. The county is experiencing political upheaval with calls to rewrite its constitution. Meanwhile, the country's position in South America may also pose some risks for investors. The area is prone to earthquakes, and climate change is creating droughts, fires, and floods.

Reliance on Exports

Chile's reliance on exports, such as copper, make its economy susceptible to slowdowns in other countries, such as the United States or trading partners in the European Union and China.

Geopolitical Risk

Chile's position within South America involves significant geopolitical risk, particularly from Argentina's economy. Meanwhile, Chile has faced some domestic unrest following protests in 2019. In 2020, Chileans voted in favor of creating a new constitution that creates more power within the state to administer social services.

Corporate Policies

Chile's corporate governance lags behind international standards, with no requirements to have nominating committees or requirements to disclose director or executive pay policies, among other things.

Investment in Chile With ETFs

The easiest way to invest in Chile is with the iShares MSCI Chile Index Fund (ECH) exchange-traded fund (ETF). With broad exposure to the country's economy, the ETF offers investors great diversification with enough liquidity to quickly enter and exit positions. Investors can also hedge against their positions with call and put options on the ETF.

Another great way to purchase Chilean stocks is through American Depository Receipts (ADRs), which are essentially foreign stocks trading on U.S. exchanges. With several ADRs trading on U.S. exchanges, the country offers a number of ways for U.S. investors to directly participate in its most popular companies.

Some popular Chilean ADRs include:

  • Banco Santander Chile (BSAC)
  • Sociedad Quimica y Minera (SQM)
  • Vina Concha y Toro SA (VCO)
  • Compania Cervecerias Unidas SA (CCU)

Finally, investors can purchase one of the country's 195 publicly traded companies (as of Oct. 2021) directly through the Santiago Stock Exchange. With a market capitalization of $181.56 billion in Oct. 2021, the exchange is one of the largest in Latin America. Some international brokerage accounts in the U.S. enable these securities to be traded directly.