Chile ETF Falters as GDP Slumps to 4-Year Low

ETF Trends

Despite the central bank cutting rates to foster growth, the Chile country-specific exchange traded fund is losing its footing as the economy crawls to its slowest pace in over four-years.

The iShares MSCI Chile Capped ETF (ECH) was down 1.2% Tuesday. ECH fell 3.4% over the past month and is down 5.0% year-to-date.

The Imacec Index, a proxy for Chile’s economic activity, rose 0.8% in June year-over-year, compared to median forecasts for a 2% expansion, Bloomberg reports.

“This was a weak reading,” Rafael de la Fuente, an economist at UBS Securities, said in the Bloomberg article. “It’s particularly concerning that the economy contracted relative to May.

The central bank revealed that manufacturing, wholesale, retail and car sales all declined, Reuters reports.

The iShares MSCI Chile Capped ETF includes a 12.3% weight toward consumer discretionary names, 10.1% in consumer staples stocks and 7.9% in industrials. Utilities make up the largest component at 26.2%.

Consequently, observers are anticipating the central bank to step up its efforts to loosen its monetary policy and help support growth.

“Even with low expectations, June’s Proxy GDP (IMACEC) managed to surprise on the downside … Although inflation data may provide some hesitation if it comes well above expectations, we believe the data should seal a call for a rate cut to 3.5 percent next week,” Pedro Tuesta, an analyst at 4Cast, said in the Reuters article.

Chile’s central bank cut the benchmark interest rate by a quarter point to 3.75% in mid-July. [Rate Cuts Could Help Stimulate Chile ETF]

“We remain of the view that the central bank will have to deliver two further 25 basis-point cuts this year,” de la Fuente said.

Chile’s gross domestic product grew 2.6% in the first quarter, compared to 4.1% in 2013 and 5.4% in 2012. The central bank will announce second-quarter GDP numbers on Aug. 18.

iShares MSCI Chile Capped ETF

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For more information on Chile, visit our Chile category.

 

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