CC-BY-SA-2.0, FlickrPhoto: Thomson Reuters. Seilern Investment Management Won Four New Awards
Seilern Investment Management have recently been acknowledged throughout Europe in the Lipper Awards, for the long-term performance of our funds. On 19th April in London, they announced the final round of UK and Pan-European awards, bringing the total to 14 awards in 2016.
Over the past weeks Seilern Investment Management have won awards for Best Equity Group (Small Company) in Switzerland, Germany, Austria, UK, and Europe and Stryx World Growth has won for Best 5 Year Performance in Switzerland, Germany, Austria, France, UK, and Europe.
“These awards are a testament to the commitment the team has in seeking out companies that demonstrate only the very highest prospects for long-term growth and reflect our consistency in generating returns for our investors. While we are gratified to be recognised, above all, we are pleased that we continue to deliver for our clients”, said Raphael Pitoun, Chief Investment Officer.
Capital Strategies Partners has an strategic agreement to cover Spain, Italy, Switzerland and LatAm market for Seilern Investment Management.
The annual “spring offensive” or in Japanese “Shunto” is currently underway in Japan. The terms refer to the annual wage negotiations that occur in March and April between labor unions and employers. In an effort to revitalize the economy, Prime Minister Shinzo Abe has been pushing the private sector to raise worker pay and try to boost consumer spending. However, media headlines have expressed much disappointment over a slowdown in wage growth and the so-called “failure of Abenomics.” But to get a true picture of Japan’s wage situation, it is important to look at growth in both base wages and bonus payments. Though base wage increases may be slowing from last year, the outlook for bonus payments is more positive.
Overall, base wage increases in Japan will likely be lower than last year, reflecting economic uncertainty surrounding the recent strength in the yen and a slowdown in its largest trading partners, namely China. On the other hand, bonus payments may be larger thanks to record corporate profits. Media attention seems to be fixated on the base wage hike at Japan’s leading manufacturers, particularly in the automotive and electronics sectors, as they set the trend for wage negotiations in the broad manufacturing sectors. So far, base wage increases have been lower than last year, so the media has been on its “Abenomics failure” frenzy. However, they ignore the fact that workers at some of those companies are getting large bonus checks that will increase their total compensation more than last year when base wage gains were higher.
Additionally, wage pressures are now stronger at small and medium-sized enterprises (SMEs) rather than larger corporations. The Japan Council of Metalworkers’ Union (JCM), which includes automotive and electronics sectors, reports that base wage gains were higher for companies with less than 300 employees than for larger corporations. This is important as SMEs provide the bulk of employment in Japan.
Even more importantly for Japan, however, is what happens at the lower end of the wage curve where we believe, wages are too low. The national average minimum wage was increased by 2.3% as of October 2015 (previous year was 2.1%). Abe is working to boost wages at the lower end, including plans to raise the minimum wage by 3% per year until it reaches 1,000 yen per hour (it will take eight years from the current 798 yen per hour) and an “equal work equal pay” rule where employers cannot discriminate pay between full-time and temporary and part-time workers if they are doing the same work. More than 30% of Japan’s workers are temporary or part-time, and are paid much less than full-time workers. Lower-income workers have a higher propensity to spend; therefore, wage increases at the lower end will have a more significant impact on consumption and hence the economy overall.
The other glaring reality is that labor is in short supply in Japan as the population declines. In 2015, Japan created more full-time than temporary or part-time jobs for the first time in 21 years. Almost 90% of those full-time positions were filled by women. Japan’s unemployment rate is 3.3%, while the job offers-to-applicant ratio is 1.28, the highest level since 1992. Regardless of what the government may or may not do, we believe there is a structural upward bias on wages in Japan.
What does this mean for consumption and the Japanese economy as a whole? This is the tricky part. As Japan’s population is declining, there is a structural downward bias on consumption and GDP. Higher female labor participation and rising wages may offset the population decline but to what degree is uncertain. For now, we remain cautious on consumption in Japan as inflation in daily goods prices has made consumer spending habits more defensive. I hope Abe will cancel the planned consumption tax increase planned for April 2017. Nobel Laureates Joseph Stiglitz and Paul Krugman were both recently in Japan where they argued that raising the consumption tax would be detrimental for the economy. We believe Abe has his mind set on postponing the tax hike and this is just a ritual to convince the Ministry of Finance. Of course, cancelling the tax hike alone won’t lift the economy. Further wage increases are needed in Japan to convince the perennially conservative Japanese household to spend. Hopefully, younger Japanese will wake up to the fact that they are increasingly becoming a “rare” resource and actually have the upper hand in terms of wages.
Kenichi Amaki is portfolio manager at Matthews Asia.
CC-BY-SA-2.0, FlickrPhoto: Brian Jeffery Beggerly. High Yield in the Crosshairs
Investing in high yield bonds is not for the faint of heart. That said, the risks associated with below-investment-grade bonds are frequently overstated and couched in hyperbole, believes David P. Cole, CFA, Fixed Income Portfolio Manager at MFS.
Late last year, investors beat a thunderous exit from high yield bonds, which in turn reverberated through financial markets as analysts pondered the implication of deteriorating credit markets on the US economy. More recently, investors have made a U-turn, and high yield has witnessed inflows again and spreads have tightened. Talk of a US recession has similarly subsided.
According to the expert, high yield bonds are subject to a cyclicality that mirrors the economic cycle — and default risk is an important factor in total investment returns. If one understands the cyclical backdrop of the high yield asset class and adopts an investment approach that involves prudent security selection, particularly in the lower-credit-quality segment of the market, high yield bonds can make a compelling addition to a well-diversified portfolio.
“The asset class has historically delivered a risk-return profile somewhere between higher-quality fixed income and equities, and has exhibited characteristics of both markets over full market cycles. In the period from 1988 to 2015, the Barclays U.S. High Yield Corporate Bond Index delivered a compounded annualized total return of 8.1% — more than the 6.6% return of the Barclays U.S. Aggregate Bond Index but less than the 10.3% return of the S&P 500 Index”, points out.
High yield bonds can offer diversification against interest rate and equity risk. With relatively low interest-rate sensitivity compared with other fixed income asset classes, the US high-yield market may offer a buffer against a rise in interest rates.
Prudent security selection in the lower-quality segment
Volatility in the lowest-rated high yield bonds can be significant. For this reason, it’s important to focus on differentiation in return and risk characteristics by credit quality, as the returns of the lower-quality segment of the market can vary quite meaningful from that of the overall high yield market.
Historically, highlights Cole, investors have not been adequately compensated for a strategic allocation to lower-quality segments of the high yield market, as the perceived carry advantage is often offset by capital losses due to defaults. Compared to the higher-quality portions of the high yield market, the lowest-rated high yield securities (CCCs) have produced lower compounded returns given the variance drain — losses incurred from heightened volatility because of the wealth erosion caused by downdrafts in security prices — associated with their significantly higher return volatility.
“While lower compounded returns argue against a strategic overweight to CCCs, this market segment also displays a greater dispersion of returns than those in the higher-rated BB or B portions of the market. This suggests potential opportunities to add value by selectively investing in CCC securities, especially on the heels of a significant selloff, when credit spreads have widened substantially”, explains the MFS portfolio manager.
Consequently, says Cole, a tactical allocation to the lower-quality segment of the high yield market can be appropriate when one is being sufficiently compensated for taking on the additional price risk. In the current environment, for instance, energy and mining companies may become attractive. However, investments in these lower-rated securities must be carefully weighed against the overall risk profile of the portfolio, as they can be both distressed and highly illiquid.
“December’s headline-driven selloff in high yield, prompted by a small handful of high yield strategies that ran into trouble with overweight positions in commodity sectors and CCC-rated securities, provided a stark reminder of just how important it is to manage credit risk in high yield”, concludes.
For MFS, the high yield market provides an opportunity for investors to gain exposure to the credit market with an asset class that provides diversification and an attractive return profile over time. Investing in this market also requires prudence, an eye for identifying inflection points, and favoring certain names — such as those on the higher-quality tier of the credit quality spectrum — to deliver attractive risk-adjusted returns.
Glen Finegan. Emerging Markets Equities: Positioning And Opportunities in Henderson's View
Glen Finegan, Head of Emerging Market Equities at Henderson, provides a detailed update on his strategy covering recent market drivers, performance and activity, and his outlook for the asset class.
How have the emerging markets performed so far this year?
A sharp decline for the MSCI Emerging Markets Index in January was followed by a strong rally during February and March, leading to a gain for the asset class overall during the first quarter of 2016.
Against this backdrop the Henderson Emerging Markets Strategy, outperformed a rising market. The investment in gold producer Newcrest Mining and significant exposure to companies listed in the unpopular Brazilian, Polish and South African markets helped. The strategy’s Egyptian and Nigerian holdings performed poorly and fell during the quarter. Over the last year the strategy declined less than the benchmark. Our approach of owning high-quality companies with properly aligned controlling shareholders and strong track records of delivery aided relative performance.
What can you tell us about your portofolio allocation?
We added to the strategy’s Brazilian positions during January’s market fall only to reduce these somewhat towards the end of the quarter following a rapid increase in valuation. We are confident the strategy owns high-quality businesses with strong franchises that will enjoy cyclical recovery when it comes. Predicting the timing of this is, however, impossible, meaning we remain extremely valuation sensitive.
Emerging consumption ¿Cómo ha funcionado el tema del consumo en los mercados emergentes?
We fully disposed of the strategy’s SABMiller position during the first quarter. The discount to Anheuser-Busch InBev (ABI)’s takeover offer has narrowed considerably and the deal still has to clear a number of regulatory hurdles. In the unlikely event it should fail there would be substantial downside in this stock.
Our search for high-quality, reasonably-valued consumer companies in India resulted in the purchase of a new holding in leading cement producer Ultratech.
Cement consumption in some less developed markets shares the same fundamental driver as basic fast moving consumer goods, namely improving living standards. Indian cement sales are conducted mostly in cash and demand is largely driven by the need for improved housing. Housing in India is primarily financed by savings and construction is often as wholesome as adding a small room to an existing property. More than 90% of cement sold in India still comes in bags rather than in bulk, indicative of this being a consumer-driven market. Furthermore, per capita consumption of cement remains low, meaning there is scope for this to increase over time.
What is Ultratech’s appeal?
A unique feature of Ultratech is its network of over 50,000 dealers throughout India selling “Ultratech” branded cement. This network is far larger than any of its competitors and has enabled the company to reach an almost 40% market share in rural India.
Ultratech is one of the crown jewels in the Aditya Birla Group, accounting for approximately 10% of group revenues. Aditya Birla is a family-controlled industrial group led by Kumar Mangalam Birla. Since becoming Chairman in 2004, after the passing of his father, Kumar has shown an ability to take a long-term approach to building strong franchises in a number of industries, including cement. He is also recognised as a leading advocate for strong corporate governance in India.
With the backing of the Birla family, we believe Ultratech will continue to take a leading role in the consolidation of India’s fragmented and overly-indebted cement industry.
What about China?
We have continued building a position in Fuyao Glass following a meeting with its Chief Financial Officer. Fuyao is China’s leading auto glass manufacturer and serves well-known carmakers in China and now also in the US and Europe. The company is a governance leader in China thanks to its far-sighted controlling shareholder who has insisted on global auditing standards since listing in 1993 and emphasised research and development investments to protect the long-term profitability of the franchise. We find the company’s current valuation undemanding given its opportunities for growth.
What is your strategy going forward?
Weak rule of law combined with many undesirable political and business leaders mean there are parts of the emerging markets universe that are cheap for a reason. We are not deep value investors and aim to avoid being seduced by low-quality companies trading cheaply. Neither are we outright growth investors and we continue to avoid what we believe are overvalued but growing South Asian consumer businesses. Instead, as bottom-up stock pickers our focus is on combing unpopular markets for good-quality companies trading at reasonable valuations.
CC-BY-SA-2.0, FlickrSharon French . Sharon French, New Head of Beta Solutions at OppenheimerFunds
OppenheimerFunds has hired Sharon French as Head of Beta Solutions. In this role, French will be responsible for growing the firm’s smart beta business by building on the success of Oppenheimer Factor Weighted ETFs as well as developing new multi-factor products to help meet client demand. French will be based in New York and will join the firm’s Senior Leadership Team, reporting directly to Art Steinmetz, Chairman and CEO of OppenheimerFunds.
“We’re delighted to have Sharon join the team,” said Steinmetz. “As we build our smart beta business, we are focused on product development that will continue to differentiate us in the marketplace and complement our long-term, active approach.”
French joins OppenheimerFunds from BNY Mellon, where she was Senior Strategic Advisor to the CEO and President of Investment Management, focusing on ETF and multi asset business growth. Previously, she served as President of F-Squared Capital. Before that, she was Head of Private Client & Institutions at BlackRock for its iShares business. French spent nearly a decade at AllianceBernstein, and held prior roles at mPower, Smith Barney, and Chase Manhattan Bank.
“OppenheimerFunds is a widely respected global asset manager that recognizes the importance of providing innovative products and solutions that address clients’ needs,” said French. “I’m excited to join the team and look forward to building on OppenheimerFunds’ demonstrated commitment to its smart beta offering.”
Vince Lowry, Lead Portfolio Manager for the Oppenheimer Revenue Factor Team, and his team will report to French.
CC-BY-SA-2.0, FlickrPhoto: T-Mizo. Negative Rates Have Overstayed Their Welcome
Low rates are a problem. An article las week in The Wall Street Journal notes that more than $8 trillion of sovereign debt now trades at negative rates. But negative rates have now overstayed their welcome, and policymakers need to consider the unintended consequences.
This problem is something the Federal Reserve is already aware of, though it is unclear if other central banks are too, points out Kathleen Gaffney, Co-Director of Diversified Fixed Income, and Henry Peabody, Diversified Fixed Income Portfolio Manager at Eaton Vance, in the company´s blog.
Both belive that there was a time for emergency measures. While the global economy is not out of the woods, and an adjustment to higher rates would be painful for a few groups, marginally higher rates would likely be a positive at this point. However, explain the managers, this would require central bankers to admit that they are not central planners and there are limits to monetary policy.
“When global central banks began their march to zero, it was well-intentioned. Lower rates spur investment and increased money supply lead to inflationary pressures as the cost of capital is reduced. But something has changed. It’s unclear what precise threshold was crossed, but incentives and risks have shifted. This brought with it unintended consequences that outweigh the benefits of 0% rates”, say.
The cost of capital is artificially low and distorting the capital markets. Corporations, at least partially at the behest of the short-term nature of many shareholders, began to embrace the low risk-adjusted return by buying back their own shares. So yes, an extended period of emergency monetary policy has benefitted some.
However, Gaffney and Peabody highlights that this has come at the expense of savers. “Savers have been forced out of bonds and into equities in order to pick up lost return. Now, the volatility in the equity market has an outsized impact on psychology and, perhaps, spending. The impact on savers has been so severe that many are highlighting the ironic and sad increase in “liabilities” associated with low returns; attaining goals is that much harder”.
According to the experts, the Fed (and other central banks) would be well-served to increase rates and generate both a more meaningful cost of capital, as well as improve income for savers. Higher rates would likely ease the pressure on consumers, allowing them to spend. This, along with well needed infrastructure spending and fiscal expansion could lead to a greater demand for credit. Higher rates would be supported by fundamentals. A higher rate would also be an affirmation of growth, and would also likely bring a focus back to long term projects and capital expenditure.
This thinking, along with relative value, is behind Eaton Vance positioning in commodity related credit as well as currencies that will benefit from the combination of supportive policy and private capital inflow, and away from interest rate risk.
“The adjustment to get to higher rates will potentially be painful for some, particularly those expecting a low volatility world to persist. Capital will likely flow toward sectors of the market that offer a cushion against higher rates, and credit with improving fundamentals”, they conclude.
CC-BY-SA-2.0, FlickrPhoto: Lucas Hayas. How Important is the Valuation of High-quality Companies?
Does the valuation of a high ROIC company matter? If Q1 companies have typically outperformed, is there any benefit to also selecting cheaper companies, or should we simply remain agnostic to stock valuation?
According to Investec experts, they prefer to use free cash flow (FCF) yield as their valuation metric as it captures the cash-generating power of the business, rather than the income statement profits, which are based on accrual accounting and are more vulnerable to manipulation by management. Moreover, the FCF yield better reflects the available cash that can be reinvested into a business for future growth, or returned to investors.
The next graph prepared by Investec shows that valuation does matter, and is more important for companies with low ROIC (those in Q4). The highest return at the individual stock level appears to be achieved by investing in companies with a high ROIC and FCF yield. Historically, investing in these companies has provided outperformance of 3.8% per annum. Meanwhile, investing in the most expensive companies with a Q1 ROIC has typically resulted in modest underperformance of 1.2%. Importantly, this analysis takes no account of the final ROIC of the company like the prior charts, and does not, therefore, assess the sustainability of high returns.
“We believe in exercising caution when operating in these areas of the market. A combination of high ROIC and seemingly cheap valuation can imply the market is anticipating a structural problem with the company’s business model, often meaning that returns have a high probability of fading fast. In this scenario you need a fundamental understanding of the inner workings of the company’s business model to properly assess the sustainability of returns. In our experience, we rarely find such an opportunity that is attractive on a risk-adjusted basis over a long-term investment horizon,” says Investec.
Alternatively, they suggest, to purchase a stock with a Q4 FCF yield, “we require the business model to be impeccable with structural trends that mean we are compensated with above average growth and limited uncertainty. Again, these types of opportunities tend to be few and far between. Lofty valuations are often caused by market over-exuberance around future growth, resulting in long-term underperformance. Consequently, we select moderately valued companies with a high ROIC that we believe can be maintained over the long term.”
Implications for portfolio construction To generate outperformance they aim to construct a portfolio for their Investec Global Franchise Strategy that, in aggregate, maintains a Q1 ROIC. Figure 7 tracks the Investec Global Franchise Strategy’s ROICs against the median quartiles for the market and shows that this aim has been met for almost the entire lifespan of the strategy. “We believe this is a positive indicator for its future performance, as we have confidence that the companies that make up this portfolio have competitive advantages to maintain their current high returns. Crucially, this confidence is based on our detailed bottom-up analysis of these companies and an assessment that their ROICs are sustainable over the long term.”
“Valuation plays an important role in our investment process. Although we believe that quality companies deserve a premium valuation, we are not willing to include overpriced stocks in our portfolios. For us, investing in high-quality companies only makes economic sense if FCF yields are superior to long-term bond yields. This comparison comes from the stable and consistent cashflow generation of these companies, many of which have bond-like characteristics,” they conclude.
CC-BY-SA-2.0, FlickrPhoto: Moyan Brenn. Schroders Enters into Market for SME Direct Lending Through a Partnership with NEOS Business Finance
Schroders today announces that it has entered into a strategic relationship with Dutch direct lending firm NEOS Business Finance. Schroders has acquired a 25 per cent. stake in the business.
Launched in 2012, NEOS Business Finance provides institutional investors access to an alternative debt financing platform for Dutch small and medium-sized enterprises (SMEs). The company has developed an approach to give SMEs access to small to medium size loans through a standardised issuance and loan terms process.
NEOS Business Finance will provide investment advisory services to Schroders in connection with the management of investment funds of Schroders’ clients investing in SME financing.
NEOS Business Finance has an extensive network and broad client base. To date, NEOS Business Finance has launched one investment fund funded by two large Dutch pension funds. In addition NEOS Business Finance works with the largest Dutch bank ABN Amro to source SMEs in need of financing. This complements Dutch government policy which encourages pension funds and other institutions to actively participate in local economies.
Philippe Lespinard Co-Head of Fixed Income at Schroders said: “Small and medium enterprises (SMEs) in Europe are increasingly looking to obtain debt financing from non-bank lenders. Part of this trend is explained by the decreasing supply of credit in that space by commercial banks who face increasingly onerous capital requirements on loans perceived as risky by regulators and supervisors. On the demand side, borrowers expect faster approval times and lower collateral requirements than afforded by banks’ traditional processes and systems. These conflicting trends open up a space for non-bank actors to provide growth financing to SMEs on simpler and faster terms.”
CC-BY-SA-2.0, FlickrPhoto: Susanne Nilsson. Repurchasing Confidence: The Potential Benefits Of Stock Buybacks
There’s no substitute for a well-run company with solid fundamentals, steady earnings growth and a seasoned management team. But investors in even the most profitable firms are always looking to add value. Two commonly used methods for bolstering corporate shareholder value are dividends and stock buybacks.
A company may decide to repurchase outstanding stock for many reasons — to telegraph confidence in the company’s financial future, return cash to investors in a tax-efficient manner (shareholders typically pay taxes on dividends) or simply to reduce the number of shares outstanding. In some cases, buying back shares just makes good financial sense – particularly when a company’s stock is trading at a discount, explains Thomas Boccellari, Fixed Income Product Strategist at Invesco.
A positive buyback performance track record
For these same reasons, investors may wish to consider companies with a propensity for repurchasing shares. A company stock repurchase is like reinvesting a dividend without incurring taxes.
“Consider also that the shares of companies that repurchase stock have tended to outperform and exhibit lower volatility than the broader market. In fact, studies show that buyback announcements have historically led to a 3% jump in stock price on average, and that the subsequent average buy-and-hold return over four years was 12%” points out the strategist.
And he adds, “the chart below shows the dollar amount of share buybacks for companies within the S&P 500 Index since 2004, as well as the performance of the NASDAQ US BuyBack Achievers Index relative to the S&P 500 Index. A rising orange line indicates that the NASDAQ US BuyBack Achievers Index (BuyBack Index) outperformed the S&P 500 Index; when the orange line is falling, the BuyBack Index underperformed the S&P 500 Index”.
So, according to the expert, while past performance is not a guarantee of future results, you can see that when the dollar amount of buybacks increased, as shown by the purple line, the stock of companies that repurchased shares (as measured by the BuyBack Index) generally outperformed the S&P 500 Index. Conversely, when the dollar amount of buybacks decreased, the stock of companies that bought back shares generally underperformed the broader market.
The benefits of international buyback shares
While stock buybacks have long been popular as a means of returning cash to shareholders in the US, they are also gaining favor internationally — particularly in Japan and Canada, poins out.
“Investing in international companies with a history of buying back outstanding shares offers the added advantage of international exposure — including geographic diversification and, in some cases, more attractive valuations than US-based companies. With both interest rates and stock valuations currently low, I believe international companies will increasingly view share repurchases as a sound investment proposition and a means of enhancing shareholder value”, concludes.
The PowerShares International BuyBack Achievers Portfolio tracks the NASDAQ International BuyBack Achievers Index and provides diversified exposure to international companies that repurchase their own shares.
Courtesy photo. Why Do Chileans Invest in Chile? Should We Follow Their Example?
Luis Felipe Céspedes, Minister for Economy, Development, and Tourism of the Republic of Chile, shared his overview on the current situation of “the most competitive economy in Latin America,” its optimistic forecasts and investment opportunities in the country –which was placed 35th in the Global Competitiveness Index– for the more than 200 participants in the World Strategic Forum. We had a chance to interview him after his speech at the event held in Miami last week.
Céspedes attributes the success of this Southerneconomy on the strength of four key elements: its institutions and the communication between them, the macroeconomic framework, the financial system and the commitment to the country’s openness and global integration. “We need to generate savings which will later be invested,” he said, referring to the financial system, adding that the vocation of integration with the economy of the rest of the world is not only governmental but a commitment of the country.
The reality is that Chilean investors represent a tiny part of the capital which the wealth management industry manages in Miami, since, say the experts, Chile presents conditions of security, stability, and opportunities for investment which are rare in the region. The Minister agrees and explains that the process of internationalization of companies, the strong growth of the economy, and its openness made it very attractive to invest in Chile. To this we must add that the government recently carried out a tax reform plan that included a capital repatriation plan, with a preferential tax rate of 8% so that fortunes held offshore would be returned to the country.
Chilean investors who wish to seize the opportunities offered by foreign instruments can do so without major difficulties, contrary to what happens in other economies in the region. According to a report by ALFI, the Association of the Luxembourg Funds Industry, of the 100 most international fund managers in the world, 57 have their products registered in Chile. And according to a study by Global Pension Assets Study, published by Willis Towers Watson, Chile is the market where the volume of pension fund assets under management grew the most globally, according to CAGR figures over the last 10 years (in local currency), up to 18%.
Cespedes insists that “the growth of the Chilean economy is due to its own engines” even though it “benefits when neighboring countries do well”. With a GDP of $ 22,972 (ppp), and a net public debt with a surplus of 3% of GDP, the minister explained that the state budget is consistent with the long-term forecasts, so that, for example, “this year we have adjusted our budgets to the lower copper prices and its long-term forecasts”. Unemployment is at around 6%, inflation fluctuates between 3 and 4%, and growth forecast for this year stands at 2%.
Challenges
The great challenge is to increase productivity; that is difficult partly because the Chilean labor force is very small -half of that in the OECD countries- and its economy is concentrated in several, but limited sectors. In this respect, the government has set several objectives: to generate diversification, attract investors, establish policies to improve competitiveness and provide opportunities for innovation.
Mining
One of the country’s great talents and major industries is mining. Chile is the largest copper producer in the world and accounts for 30% of world reserves of a mineral which represents 60% of its exports, 20% of revenues in the state coffers through taxes, generates 11% of all employment and accounts for 13% of the country’s GDP. The question is can copper play a new role in the development of the Chilean economy?
“We have to attract investments”
It’s complicated, but doable. At least, that’s what is deduced from the optimistic speech of this finance professional, and from the policy stating that “we have to attract investments” in order to improve technology and innovation, the connection between demand and providers, care for the environment, and develop the production process to adapt it to global needs, promoting exports of other, already manufactured, copper-related products.
Opportunities
Following the fall of oil prices and the sharp rise in energy prices, the government took action: “Since 2013, the government has reduced the price of energy by 40% and investment in the energy sector is now greater than that allocated to copper. We have attracted new investors to the energy sector,” the satisfied Minister for the Economy pointed out.
According to the minister, opportunities currently lie in mining development, sustainable tourism, healthy food, construction, creative economy, the fishing and fish farming sector, technology, and health services.
“The five largest companies in the world did not exist 20 years ago, however, the 10 largest Chilean corporations are all more than 20 years old,” he says, convinced that the key is to attract innovative minds.
Profile
Luis Felipe Céspedes Cifuentes is Minister of Economy, Development and Tourism of the Republic of Chile. He previously held various positions in the Central Bank of Chile, the last as Director of Research; he was chief economist adviser to the finance ministry, a professor at several universities, both in Chile and in the United States, and author of numerous publications on monetary, fiscal, and currency exchange policies.
