We leave for Chile this coming Thursday night, first to chase a few trout in the Rio Puelo and then to Santiago for the GIC meetings.  We have the privilege of chairing the GIC delegation on this post-earthquake, second GIC visit to that country.  As readers can see from the last four paragraphs below, Cumberland has a significant overweight position in Chile.

Chile’s central bank announced today that it will accumulate $12 billion in reserve additions in 2011.  It will start this “intervention” program by buying $50 million USD daily between January 5 and February 9.  Clearly, Chile is worried about its Chilean peso/US dollar exchange rate.  The central bank minutes were also released today; they showed the debate about slowing the interest rate hiking from 50 basis points to 25 bps.  What a terrific time to visit Chile while it is in the midst of these transitions.

In Santiago, there will be a number of private discussions among our delegates and with Chilean and other LatAm counterparties.  They will be interspersed with some touring fun (Pablo Neruda Museum) and run Friday through Sunday, January 14-16.

The Chilean public program starts on Monday, January 17 in Santiago.  That conference will be held at the Central Bank of Chile.  Anyone interested in joining at the last minute may call the Global Interdependence Center, 215-898-9453.  Other details may be found at www.interdependence.org.  Press inquiries go to the GIC office.  The private GIC roundtable under Chatham House Rule will be on Tuesday morning, January 18.  We fly back that Tuesday night.

Speakers on Monday, January 17 include:

1. Jose De Gregorio, Governor of the Central Bank of Chile, with comments on monetary policy
2. Charles Plosser, President of the Federal Reserve Bank of Philadelphia, “Thoughts on the Scope of Monetary Policy”
3. Paul Thomas, Chief Economist and Manager of Market Sizing and Forecasting, Intel Corporation & Board Member, GIC
4. Rajeev Dhawan, Director of the Economic Forecasting Center at the J. Mack Robinson College of Business, Georgia State University, “Is Federal Reserve Bank Policy Working in the US?”
5. Michael Drury, Chief Economist, McVean Trading and Investments, “Is Central Bank Policy Affecting Global Commodity Prices?”
6. Stephen Sexauer, Allianz Global Investors Solutions, “Is Central Banking Policy Creating Distorted Pricing and Profits?"
7. Eugenio J. Alemán, Senior Economist & Vice President, Wells Fargo Economics, “LatAm outlook”
8. Benjamin Leavenworth, Executive Director, Chispa Group; Honorary Consul of Chile & Board Member, GIC

Chile has been and remains high on Cumberland clients’ radar screens.  It is one of the great success stories in South America.  I asked Bill Witherell, Cumberland’s Chief Global Economist, to put together a short brief on why we believe Chile is important in the global portfolio investment theme.  

Bill emailed the message below.

Investing in Chile via ETFs

“ ‘There is one US listed ETF for the Chilean equity market, the iShares MSCI Chile Investable Market Index Fund, ECH. The MSCI index it tracks is a free-float-adjusted market capitalization index designed to measure broad-based equity market performance in Chile. The index consists of stocks traded primarily on the Santiago Stock Exchange.’ (Quote is from iShares.) The five top sectors in the ETF are Utilities (23.61%), Materials (20.48%), Industrials (19.93%), Consumer Staples (12.72%), and Financials (11.23%).

“Last year, according to Ned Davis performance statistics, ECH gained 45.28%, a performance far above that of the EEM benchmark, 14.80%. While the surging global copper market was an important positive factor, the sector distribution shows copper (materials) exports were not the only factor behind the economy’s estimated 5.5% growth in GDP last year. Considering that the year began with a serious earthquake, that performance is truly impressive.

“Cumberland Advisors anticipated this outperformance last year and is continuing to overweight Chile in our portfolios going forward into 2011. In a year in which many emerging-market economic growth rates are expected to moderate (e.g., Brazil, from 7.5% to 4.5%, according to Barclays), Chile’s growth will likely be stronger, over 6%. Our current model weights for ECH are Emerging Markets Model : 7%, International Model: 4%, Global Multi-Asset Class: 3%.  The iSHares MSCI Emerging Market Index Fund, EEM, weight for Chile is 1.93% . The MSCI All Country World Index Ex US Index Fund, ACWX, weight for Chile is 0.39%.

“Looking forward, Latin America as a whole, including  Chile, appeared to be slowing in the final moths of 2010. But this seems to be a mid-cycle moderation, not the end of the recovery. We expect 2011 to be another good year for the well-run Chilean economy. We expect the Chilean equity market to outperform again, but by a considerably smaller margin than was the case in 2010.”