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Tickers in this Article: CH, LFL, SAN, EOC, ENI
Investing in Latin America is not a new strategy. The Brazilian and Mexican stock markets have been in rally mode for years and are two popular investment choices for investors looking for foreign exposure. Because of the political turmoil in many of the countries in the region, investors typically do not branch out from the big two.

Fundamentally Sound
It is now time for investors to begin considering a new investment opportunity in Latin America - Chile. Over the last three years the Dow Jones Chile Index has nearly doubled in price as its fundamentals have been improving.

Since 1998, the Chile's interest rates have fallen from the high teens down to 5%. When rates began to drop it was not enough to save the Chilean stock market as it fell from 1997 through 2002. During that time the Chile Fund (AMEX: CH), a closed-end fund, lost 80% of its value. When the stock market bottomed in 2002 the GDP was 2.2%, the second lowest number since 1985.

After hitting a low in 2002, both the stock market and the GDP numbers began to rise steadily. Growth hit 6% in 2004 and 5.7% in 2005 before dipping to 4.0% in 2006.

The IMF growth estimates for 2007 and 2008 are 5.2% and 5.1%, respectively. Both numbers are above the projections for the United States and signify solid growth prospects.

Along with low interest rates, Chile's unemployment rate has been on a decline and inflation is approximately 3%. To further show the stability of the country and its political system, all three ratings firms have Chiles long-term foreign currency ratings higher than Mexico and Brazil.

The Chile Fund
Unfortunately there is no exchange-traded fund (ETF) that concentrates solely on Chile. There are a few Latin American ETFs; however, the exposure to Chile is typically less than 10% of the allocation. There is the closed-end fund mentioned above, CH, that can be used for a diverse entry into the country. (To learn more about closed-end fund, see Uncovering Closed End Funds and Open Your Eyes To Closed-End Funds.)

The makeup of CH is attractive due to a heavy weighting in local utilities, resources and basic industry. Foreign utilities are able to take advantage of the weak U.S. dollar because the majority of their revenues come from local currency. The resources and basic industry part of CH is focused on the mining industry. Chile is the largest copper producer in the world.

The few issues that scare investors away from CH are the high fees, low liquidity and lack of diversity. The expense ratio is a lofty 2.14% because it is a closed-end fund and not an ETF. The fund only trades approximately 25,000 shares per day, making it difficult for big money to maneuver in and out of positions. Then there is the high concentration at the top. The top three stocks make up 43% of the entire allocation.

Stock Picking in Chile
Investors that do not mind taking on the added risk of investing in an emerging country have a handful of Chilean stocks that trade on U.S. exchanges as ADRs. The No.2 holding of CH is Empresa Nacional de Electricidad (NYSE: EOC) the largest power generator in Chile. EOC is 60% owned by another top ten holding of CH, Enersis (NYSE: ENI). ENI is the largest power holding company in all of Latin America with operations in Chile, Brazil and Argentina among others. Both stocks have enjoyed great runs over the last few years and remain 'buy' candidates as long as the uptrend continues.

With more than 350 branches in Chile, Banco Santander Chile (NYSE: SAN) is the largest bank in the country. Anytime an emerging country is creating more wealth for its citizens it bodes well for the banks. As the middle class expands it creates a need for more banking services throughout the country. According to Hoovers, SAN grew sales by 32% last year, a solid number for a bank.

When the airline stocks found a bottom in 2002, Lan Airlines (NYSE: LFL) was sitting at $3 per share. As of June 2007, the stock was trading above $80! The leading airline in Chile provides passenger travel to over 95 destinations internationally as well as freight transport. All airlines must be concerned with rising energy prices, but LFL is one of the few that is making a sizable profit. Last year LFL grew its net income by 35% according to Hoovers.


Decision Time

After this brief look, you might be considering Chile a buying opportunity, or the above-average risk could have scared you away. The final decision is all yours, but now that you have a few insights into the country and a number of its investment opportunities, you are ahead of the crowd.

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