Chile’s pension funds had $133 billion of assets under management at the end of November, the equivalent of 65% of the country’s gross domestic product. The funds must take long peso positions to offset their foreign currency exposure when they buy assets abroad.
Despite protestations from my friends in Chile, I am still a short to midterm bear on the Chilean peso due to weak manufacturing data from China as well as growth issues in the US & Europe and the Eurozone debt crisis. As a country whose main exports are commodities (mining and agricultural), it can’t help but be hit. This is, however, good for the rest of Chile’s export sector, as a weakened peso increases competitiveness. Since Chile needs further economic diversification (away from commodities), it could present a unique opportunity for the country’s budding tech sector to shine.
