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Chilean AFPs ditch developed market passives for bets in EM

Chilean AFPs ditch developed market passives for bets in EM

Chilean pension funds are turning away from passive investments in developed regions to invest in emerging markets with a growing appetite for Asia and Latin America, according to latest reports.

Asia is the region where most emerging market investment flows are headed, with $11.5 billion (€10.25 billion) invested in equities in August.

‘The perceived risk in China has decreased, which has helped in decreasing the risk in markets linked to commodities, like Brazil, which has seen a rally thanks to political changes,’ said Santiago Arias, head of institutional distribution at the Latin American investment and advisory firm HMC Capital.

Investments flows for Latin American equities have increased by 382%, jumping from €15.5 million in May to €73.1 million in August. Since the start of 2016, AFPs have placed €312 million throughout Latin America, without counting direct investments in Chile.

 AFPs are also increasing their bets on Chilean equities, due to attractive valuations and lack of risk associated with them. High quality stocks such as retail giants Falabella and Cencosud have seen growth.

Arias flagged that the flow into emerging markets also extends to corporate and sovereign debt.

On the other hand, the pension funds are moving money away from passive funds in the United States and Europe. HMC reports show that €6.24 billion has been withdrawn throughout the year, with €624 million exiting passives in August alone.

‘This is a global trend given the low growth expectations in Europe and the high valuations in American companies,’ said Arias.

He noted that this movement away from passive investments is consistent with Peruvian and Colombian AFPs.

HMC Capital compiles using flow data provided by the Chilean pension regulator from all six Chilean AFPs.

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