As the emerging markets got into a very over-sold level, we saw a “counter-trade” on Tuesday which begs the question: is it a “dead-cat bounce” or a real turn around?
In Chile we saw a reversal in stocks with the IPSA index turning, and the peso and copper higher.
The IPSA was up 1.3 percent for the week and up 3.1 percent from Monday’s low, closing the week at 3,487. Chilean stocks have been hammered due to slower growth, lower copper prices and effects from Argentina’s devaluation of their currency.
The drop has been most evident in country’s ETFs (exchange traded funds) with Chile at the bottom of 43 individual country ETFs. The bottom five for January 2014 were: Chile (ECH) down 14.5 percent, Turkey (TUR) down 12.8 percent, Brazil (EWZ) down 12.2 percent, Argentina (ARGT) down 11.1 percent, and Russia (ERUS) down 11.0 percent.
During the week, Banco Santander Chile did a conference call that discussed the economic slowdown in Chile. The bank is estimating that GDP for 2013 will come in at 4.1 percent compared to 2012’s 5.6 percent. Going forward they expect 2014 GDP to be lower, in the range of 3.8 to 4.0 percent, with a slight uptick in 2015 to 4.2 percent.
The discussion supports the thought that the Central Bank will continue to drop interest rates by at least 25 basis’ points at their next meeting on Feb. 18.
That thought is reflected by the peso closing the week at CL$554, relatively unchanged for the week after hitting CL$560 on Monday, staying in a multi-year low range.
Copper prices that were down about 4 percent in January finally broke a nine-day losing streak at the end of the week closing at US$3.24 per pound on Friday, up 1.6 percent, after trading as low as US$3.17 per pound. Just one year ago copper was at US$3.82.
During the week we heard news that Hedge Funds were bailing from copper and moving to gold. Cochilco, an agency of the government, said the supply in 2014 would be up 18 percent as demand stabilizes, effecting prices. They are expecting that the average price in 2015 will be approximately US$3.00 per pound.
In other news, Chile’s CFR Pharmaceuticals has dropped its offer to purchase South Africa’s drug maker Adcock for US$1.2 billion. After almost one year, which included a price increase, CFR has not been successful in reaching the required percentage of Adcock shareholder approval.
Both Enersis and Endesa reported a surge in 2013 profits out-stripping analyst’s expectations.
Enersis’ earnings were up 74.5 percent over 2012 to US$1.3 billion while analysts were looking for US$1.2 billion. The boost was primarily due to higher monetary generation.
Endesa Chile saw a 51 percent earnings increase over 2012 to US$675 million while analysts were looking for US$587 million. Lower generation costs boosted the company’s earnings.
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