1. One emerging market theme has been the development of a middle class and domestic consumption. How far along is Chile in this process and how does it compare to other Latin American countries?

The Chilean economy is a bit more mature than other countries within Latin America, so it is further along in regards to the establishment of a middle class and more robust domestic consumption trends, but it is still a relevant theme. Sabastien Pinera, Chile’s president, has aimed for the country to be classified as a “developed” nation by 2020 and we believe that this aim would not be far off as Chile is perhaps the most likely of Latam countries to make it there first. Domestic consumption continues to drive the economy more than exports and we believe that all the classic signs of middleclass development are there ie: consumers get jobs, bank accounts, loans then TVs cars etc. During the ongoing 2012 Budget discussion, the Piñera Administration announced it has chosen to make permanent the 20% tax to corporations which was temporarily raised from 17% last year because of the Earthquake. This would imply an increase of US$450mm per year in revenues and would allow for tax cuts to the lower income sector and smaller companies.

2. Chile is known for copper production but how diverse is its economy?

Copper is Chile’s most important export representing over 50% of exports in total. Some analysts question whether the copper sell-off is coming to an end. Fears of a global recession, at worst, as witnessed by the global slowdown, have driven down prices of copper by approximately 25% since August. The slowing of the Chinese economy, one of the major importers of copper, plus a strengthening U.S. dollar have certainly halted what has been a bull market in copper. But, I don’t believe the price of copper will fall much more drastically. Supply limitations brought on by some disruptions at mines plus a decline in ore quality, should place a floor on the price of copper.

Chile has a number of other important exports besides copper. Paper and pulp are also important to the economy. Trees grow much faster in Chile so it has a natural advantage in this regard. Chile also has significant nitrogen resources which are used in fertilizers and is an important producer of iodine for medical uses, as well as lithium for batteries from the salt planes. Overall however, Chile is more reliant on exports than Brazil or Colombia for example. Exports are more like 40% of GDP versus 10% in Brazil.

3. As an exporter of commodities, how does Chile benefit from the broader emerging market growth story?

The close economic ties between Chile and China cannot go understated. Chile was the first country in Latin America to sign a free trade agreement with China in 2005 and China has become one of Chile’s top export destinations. Though much of the exports are copper-related, recent expansion of the free trade agreement will go beyond commodities and include the services sector as well.

4. Emerging markets are often thought to have limited transparency and weak corporate governance, how does Chile compare?

In regards to corporate governance and transparency, Chile is better than most of its Latam peers. The country has robust capital markets and a developed legal framework. Few companies have two classes of shares, most boards have independent directors and minority shareholder representatives. Many believe Chile represents a good example for other countries in the region as it has quite adequate legal and enforcement mechanisms in place.

5. There are significant concerns about the European banking sector and the potential for contagion. How exposed is the Chilean financial sector to this risk?

Chilean banks are probably stronger than during the crisis of 2008, so the main impact of this crisis is likely to be on trade, which could weaken from here to cause problems. Finance minister Filipe Larrain has recently announced that financial authorities within the county are working on what they call a “contingency plan” to ensure that the Chilean economy can maintain its growth prospects in the face of the increasingly complicated fiscal situations of both Europe and the U.S.

6. Are there any sectors that you’re avoiding and why?

We are less keen on the utilities sector. The earnings within this sector seem to be quite volatile as utilities companies, especially those dependent on hydro-electric power, are dependent on rainfall, which can be quite unpredictable. We are also wary of the sector because of regulatory risk. We do however own Enersis which we believe is more diverse.

7. P lease provide an overview of the Fund’s current positioning.

We are overweight consumer cyclicals and the financials sector. We like sectors that benefit from domestic demand as such companies are well-positioned to benefit from the country’s growing middle-class. We have less weight in exporters, though we do own positions in companies that benefit from Chile’s low-cost producers of commodities such as pulp, and also fertilizers.

 

Aberdeen’s closed-end fund range

Aberdeen Asia-Pacific Income Fund, Inc. (NYSE Amex: FAX)

Aberdeen Asia-Pacific Income Investment Company Limited (TSX: FAP)

Aberdeen Australia Equity Fund, Inc. (NYSE Amex: IAF)

Aberdeen Chile Fund, Inc. (NYSE Amex: CH)

Aberdeen Emerging Markets Telecommunications and Infrastructure Fund, Inc. (NYSE Amex: ETF)

Aberdeen Global Income Fund, Inc. (NYSE Amex: FCO)

Aberdeen Indonesia Fund, Inc. (NYSE Amex: IF)

Aberdeen Israel Fund, Inc. (NYSE Amex: ISL)

Aberdeen Latin America Equity Fund, Inc. (NYSE Amex: LAQ)

First Trust/ Aberdeen Global Opportunity Income Fund, Inc. (NYSE Amex: FAM)

First Trust/Aberdeen Emerging Opportunity Fund, Inc. (NYSE Amex: FEO)

The Singapore Fund, Inc. (NYSE: SGF)

The India Fund, Inc. (NYSE: IFN)

The Asia Tigers Fund, Inc. (NYSE: GRR)

Aberdeen’s subsidiaries (the “Aberdeen Group”) have managed U.S. registered closed-end funds since December of 2000 and is the largest manager of emerging market closed-end funds offered around the world by both value and number. (1)

Chilean equity valuations are looking quite more reasonable within the last year. P/E ratios have been slightly lower as of recently and though looking somewhat high in comparison to the mid 1990’s, price-to-book ratios have also come down to attractive levels within the year. We believe such statistics show that there exists opportunities to spot attractive companies at reasonable valuations within Chile.

 

 

Investors should consider a fund’s investment objectives, risks, charges and expenses carefully before investing. A copy of the prospectus for Aberdeen Australia Equity Fund, Inc. and the Aberdeen Chile Fund, Inc. that contains this and other information about the fund may be obtained by calling 866-839-5205. Please read the prospectus carefully before investing. Investing in funds involves risk, including possible loss of principal.

(1) Source: Fund Consultants LLC, July 2011. Based on analysis of emerging market closed-end funds offered in multiple jurisdictions as of June 30, 2011; data provided by Morningstar Inc. Closed-end funds are defined as investment companies that are 1) listed on a recognized exchange; 2) possess fixed share capital; and 3) were formed via subscriptions from the public via an open offer or placement. Criteria for inclusion in the emerging markets category is based on the World Bank’s definition of emerging countries as measured by lower and middle income per capita. Criteria for fund inclusion is 1) at least 75% of gross assets invested in emerging markets; and 2) funds with under 25% exposure to Asian developed markets.

 

Important Information

The above is strictly for informational purposes only and should not be considered as an offer, or solicitation, to deal in any of the investments mentioned herein. Closed-end funds, unlike open end funds are not continuously offered. Closed end funds generally have a one-time initial public offering and then shares are subsequently traded on the secondary market through one of the stock exchanges. The investment return and principal value will fluctuate so that an investor’s shares may be worth more or less than the original cost. Shares of closed end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the fund’s portfolio. Shares of closed-end funds frequently trade at a discount from the net asset value. The price of the Fund’s shares is determined by a number of factors, several of which are beyond the control of the Fund. Therefore, the Fund cannot predict whether its shares will trade at, below or above net asset value. There is no assurance that a fund will achieve its investment objective.

Any opinion or estimate contained in this document is made on a general basis and is not to be relied on by the reader as advice. Neither Aberdeen nor any of its agents have given any consideration to nor have they made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or group of persons. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained in this document. The information herein including any expressions of opinion or forecast have been obtained from or is based upon sources believed by Aberdeen to be reliable but is not guaranteed as to accuracy or completeness. The information is given without obligation and on the understanding that any person who acts upon it or otherwise changes his position in reliance there on does so entirely at his or her own risk. Aberdeen reserves the right to make changes and corrections to its opinions expressed in this document at any time, without notice. Any unauthorized disclosure, use or dissemination, either whole or partial, of this document is prohibited and this document is not to be reproduced, copied, or made available to others. The information presented, was prepared and issued by the Fund based on publicly available information, internally developed data and other sources believed to be reliable. All reasonable care has been taken to ensure accuracy. International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods; these risks are generally heightened for emerging market investments. There are also risks associated with investing in Latin America, including the risk of investing in a single-country fund.

Aberdeen is the U.S. registered service mark of Aberdeen Asset Management PLC. Investors should consider a fund’s investment objectives, risks, charges and expenses carefully before investing. A copy of the prospectus for Aberdeen Australia Equity Fund, Aberdeen Chile Fund, Inc. and Aberdeen Global Income Fund, Inc. that contains this and other information about the funds may be obtained by calling 866-839-5205. Please read the prospectus carefully before investing. Investing in funds involves risk, including possible loss of principal.

 

 

 

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