October 28, 2013 (www.investorideas.com newswire) Credicorpcapital.com - After some time looking at our markets, meeting with the companies mentioned in this report, contacting regulators and talking to many investors, big and small, we finally think this report is ready to be published. This is far from saying it is finished and we expect to improve in future releases. We hope you enjoy it and we thank you for your feedback!
These are some of our findings:
The global economic turmoil hurt Chile, Colombia and Peru, with lower commodity prices being the main contagion vehicle. Economic growth, however has remained resilient in the three countries. High global liquidity levels, flexible exchange rates and sound fiscal and private balance sheets have allowed domestic demand to remain solid.
Colombia and Peru are mildly accelerating, on the back of strong consumption and mostly reflecting much-needed catch-ups in infrastructure. Chile is in a slight decelerating path in which private consumption (fueled by record-low unemployment) is compensating the slowdown in investments and fiscal spending.
Consistently, inflationary pressures are lowest in Chile, whose Central Bank is entering a loosening phase, while CBs in Colombia and Peru are more hawkish.
A recovering global economy may fuel exports. We believe higher commodity prices and stabilized Chinese demand for raw materials are already priced in most commodity plays in the region. Some Peruvian mining companies, Copec in Chile and Pacific Rubiales in Colombia are the main exceptions.
Unlike what has happened in recent history in the region, politics are causing the most noise in Chile , with presidential elections taking place next November and with the upcoming government expected to make a shift to the left. In Peru , the government is dealing with low approval rates, but with no major election in sight, it is focusing on unleashing investments through cutting red tape and dealing with bureaucracy. Most Colombians are skeptical on the peace talks which seem to be the straw at which the government is clutching at, in order to gain popularity.
Recovering from weak commodity prices, cost pressures, and also on the back of the maturation of investments, corporate earnings will grow across the three countries in 2014, with companies in Peru posting the strongest recovery (25%) as it is mostly exposed to commodities through its mining components. Profits in Chile and Colombia will grow at 19% and 13%, respectively.
Valuations in the three markets are mostly in line with their historic averages. We do not have a strong preference for any of the three, with bottom-up analysis really driving our suggested allocations. We highlight, however, that we see the biggest downside risk to our forecasts in Chile , coming from a potential hike in corporate taxes next year. We see upsides of 13% in Chile and Peru , and 12% in Colombia.
YTD flows from foreign investors have been negative in Chile and in Peru, while Colombia has enjoyed continuous inflows.
Published at the Investorideas.com Newswire - Big ideas for Global Investors
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