Local institutional investors, such as pension funds, are timidly returning to the local stock market attracted by “extraordinarily low” valuations and after some political clouds have lifted, said Rodrigo Rojas, partner and director of Toesca’s equity investment area. Asset Management.
“Things cannot stay cheap forever,” said Rojas, who manages the Toesca Chile Equities Mutual Fund, which has about 21 billion Chilean pesos (about $26 million) in assets. The fund outperformed 94% of its peers in 2021, according to data compiled by Bloomberg.
The year 2022 will be marked by high volatility, with the market reacting to everything that the incoming Government of Gabriel Boric and the Constitutional Convention.
The flows are coming back. Local pension funds bought a net US$22.8 million in local shares in December, after selling more than US$600 million in the previous three months, according to Bice Inversiones. And this month they have continued to be net buyers, says Rojas.
The S&P IPSA Index of Chile closed 2021 with a forward price-to-earnings ratio of nine times, a discount of about 40% compared to the five-year average. The punishment for its exposure to the local market has been disproportionate, particularly considering that about half of the EBITDA of IPSA companies is generated outside the country.
The new Constitution will be the factor of greatest uncertainty in the market, particularly the way in which the new environmental regulations affect investment decisions, Rojas said.
As for bets for 2021, stocks in the retail sector, such as SMU and Cencosud, could get a boost from the roughly US$20 billion in pension fund withdrawals and tax relief remaining in Chileans’ pockets, according to Rojas. Local banks, meanwhile, will continue to benefit from higher inflation as most of the loans they provide are indexed to consumer prices.
Rojas also highlights BCI, since its operation in Florida, United States, represents up to 30% of its profits.
Shopping center operators such as Cencosud Shopping, Parque Arauco or MallPlaza also have valuations that lag behind those of retailers, while small-cap stocks such as Besalco or Embonor also have attractive valuations.
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