Citi Upgrades Chile Stocks To Overweight; Cuts Colombia
By Kejal Vyas, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Latin America strategists at Citigroup upgraded Chilean
equities Monday, but downgraded their preferred exposure to Colombia, saying
that new capital controls could soon be introduced as the country looks to halt
the appreciation of the peso.
"The risk is high enough such that we are downgrading the market to neutral,"
wrote Citi analysts Geoffrey Dennis and Jason Press in a note to investors after
a recent trip to Colombia. They said the country's "fiscal and external balances
remain fragile and continue to deteriorate" but added, "we still like the market
long term."
Between May 2007 and September 2008, Colombia had required a 40% deposit with
the central bank on all foreign funds, in a bid to limit the influence of short-
term capital. Now, Colombia, like many other countries in the developing world,
faces a rapidly appreciating currency, which is a strain on its export industry.
New capital controls would present short-term challenges for the country's
equities.
Also, analysts said valuations on Colombian stocks "appear stretched," trading
at 19.9-times this year's earnings compared with a historical average P/E of
16.9.
In the same note, Citi upgraded Chile to overweight from underweight, as a "
likely victory for right-wing candidate Sebastian Pinera in the Dec. 13 [
presidential] election does not appear to be fully priced into the market."
Also, the economy is recovering fairly well with analysts expecting a 4.4%
economic expansion in 2010 and the central bank seems committed to keeping rates
at historic lows -- 0.5% -- until the second quarter next year.
As such, analysts recommended buying Chilean banks and retailers.
The MSCI Chile index is up 68% this year and the MSCI Colombia index is up 72%
. The Emerging Latin America index, meanwhile, has gained 94%.
-By Kejal Vyas, Dow Jones Newswires; 212-416-2185; kejal.vyas@dowjones.com
(END) Dow Jones Newswires
11-23-091120ET
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