The US markets have had a great run in 2023 so far, but now seem to be priced with a fair degree of optimistic froth, particularly in the mega caps that led us here.
With that in mind, however, I always like to say there's an opportunity somewhere. Today's opportunity brings us to another continent: South America.
Today's idea involves Chile, a country where the economy and market may be set to meaningfully recover.
Chile's GDP growth slowed significantly during 2023 into contraction, but it is expected to improve significantly as we head into 2024.
Inflation is also expected to slow meaningfully as we end 2023 and head into 2024, which could prompt Chile's central bank to begin cutting rates. Markets expect that cuts could start as early as Q3 to 10.25%, and fall to ~7.13% in 2024.
Currently Chile's interest rate is 11.25%, hiked aggressively in response to rip roaring inflation. With it subsiding and the economy contracting, there is cause to consider a cut. Such cutting could stimulate the appetite for risk assets in the country.
Chile's equity market is objectively cheap, too, making it an attractive contender for emerging market exposure.
The ECH ETF seems to be breaking out here. The last stage of proving that breakout would be a monthly close above the monthly Ichimoku cloud.
Because the ETF is not currency hedged, the Chilean peso is important to watch. The USDCLP pair appears to be consolidating within a range over the last 6 months, and rate cuts could further weaken the peso. A risk for ECH exposure.
On a daily chart we can also see ECH is a bit overheated after its recent run.
I would be inclined to look at a long around $29 if we retrace back there, with a stop out below $28. This would be a longer-term trade, something I would plan to hold for 4-6 months, with an upside target of $45.
The ETF also boasts a 6.33% dividend, allowing holders to be paid while they wait for the trade to pan out.
As always, I hope this idea is helpful. Be sure to consult with a financial advisor before implementing any trading or investing strategies, though. See below for our Disclaimer and the linked Terms of Use. I have no position in ECH, and may initiate a position after three days of publishing this article.