By Tal Barak Harif and Ivan Weissman March 1 (Bloomberg) -- Chile stocks fell the most in almost a month, the biggest drop among the world’s 50 largest markets, after an 8.8-magnitude earthquake killed hundreds, severed the nation’s main highway and damaged 1.5 million homes. Empresa Nacional de Electricidad SA, the nation’s biggest power generator, andLan Airlines SA, the country’s largest carrier, dropped following electricity outages and airport closures. Salfacorp SA, Chile’s biggest building company, jumped the most in five months on speculation it will benefit from increased business as the nation recovers. The Ipsa Index dropped 1.2 percent to 3,782.04, the biggest decline since Feb. 5, following the country’s biggest earthquake since 1960. Chile’s peso pared a retreat of as much as 1 percent in Santiago, losing less than 0.1 percent to 524.70 per dollar, on speculation the government will repatriate overseas savings to fund reconstruction. “It’s a pretty horrific event,” said Urban Larson, who helps manage about $2.2 billion in emerging markets at F&C Management Ltd. in London. “Long-term Chile can handle this quite well, although the short-term looks difficult.” Copper jumped to a seven-week high in New York after the quake in Chile, the world’s largest producer, forced Codelco, Anglo American Plc and Antofagasta Plc to halt mine operations after power cuts. Chile’s benchmark 10-year peso bond yield fell to the lowest since the end of October. The yield for a basket of Chile’s 10-year peso bonds in inflation-linked currency units, called unidades de fomento, slid four basis points, or 0.04 percentage point, to 2.96 percent, according to Bloomberg composite prices. ‘Catastrophe’ Roads and airports were shut due to damage. The total economic impact may be as much as $30 billion, or about 15 percent of the South American country’s gross domestic product, according to estimates by disaster-scenario modeler Eqecat Inc. At least 700 people were killed. President Michelle Bachelet declared a “state of catastrophe,” saying that about 2 million people have been affected by the earthquake that the U.S. Geological Survey said was the world’s fifth strongest since 1900. The army is deploying about 10,000 troops, Defense Minister Francisco Vidal said. Chile’s $11.3 billion savings fund will stabilize the peso after today’s “knee-jerk” decline, according to Goldman Sachs Group Inc. and Bulltick Securities Corp. The government will likely tap the overseas fund, stockpiled with copper revenue, to finance reconstruction projects, bringing in dollars that will help offset a slump in exports, said Alberto Ramos, a Goldman Sachs economist. ‘Rapid’ Reconstruction The peso rallied 26 percent last year, the most since at least 1982, as the government spent $9.3 billion of the savings to shore up growth amid the global recession. Chile, whose debt is the highest rated in Latin America, is “by far” the country best suited in the region to fund the spending needed after a disaster, said Alberto Bernal, head of emerging-markets research at Bulltick in Miami. The government will disburse the money for reconstruction at a “rapid pace,” helping sustain growth and fuel a peso rally, he said. Chile’s central bank will probably delay raising interest rates, analysts from Goldman Sachs and Moody’s Economy.com said. The quake is likely to disrupt growth in the $169 billion economy for two quarters as incoming PresidentSebastian Pinera focuses on getting assistance to the damaged area, saidAlfredo Coutino, chief Latin America economist at Moody’s Economy.com. ‘Substantial’ Impact The temblor was centered 200 miles (317 kilometers) southwest of Santiago near the main winemaking region and close to Concepcion, a metropolitan area of more than 500,000 people. More than 50 aftershocks followed the earthquake, which was stronger than the one in Haiti on Jan. 12 that may have killed 300,000 people. “Given the extraordinary magnitude of this earthquake, its impact will be substantial,” Stacy Steimel, who helps manage $87.3 billion at PineBridge Investments in Santiago, wrote in an e-mailed note yesterday. “I expect to see a temporary pullback in the Ipsa, which I would consider a buying opportunity.” Chilean telecommunication companies and banks will also be affected “as credit quality is disrupted,” Greg Lesko, who helps manage $750 million at Deltec Asset Management said yesterday. Banco Santander Chile, the country’s biggest lender, dropped 0.9 percent to 32.1 pesos. Banco de Credito e Inversiones lost 1.9 percent to 18,502 pesos. Power Outages Utilities such as Endesa Chile in Santiago will suffer “the biggest impact” because of power outages, Eric Conrads, a hedge fund manager at Armada Capital SA, said yesterday. Chilectra, the electric utility for the Chilean capital of Santiago, said electricity was restored to 80 percent of the city’s homes and businesses after the quake. Endesa Chile fell 1.1 percent to 860 pesos and Lan declined 1.7 percent to 9,097 pesos. Builders including Salfacorp and Besalco SA surged on speculation they may benefit from rebuilding efforts. Salfacorp, the nation’s biggest builder, climbed the most since Sept. 28, rising 5.9 percent to 995 pesos. Besalco jumped to a record, advancing 8.5 percent to 396 pesos. Cristalerias de Chile SA, the glass container producer known as Cristalchile, gained the most in almost six months, surging 10 percent to 6,850 pesos. “We anticipate that the rebuilding effort will come to be the more lasting effect of the quake on the Chilean economy, providing an important positive stimulus later this year,” said Bill Witherell, who helps oversee $1.5 billion in exchange- traded funds and fixed income as chief global economist of Cumberland Advisors Inc. in Vineland, New Jersey. “We would view any pullbacks in the Chilean equity market as a possible buying opportunity.” Chile’s Ipsa Index slumped as much as 2.9 percent earlier, the most intraday since Dec. 1, 2008. The measure is the most expensive in Latin America after Colombia’s IGBC Index, trading at 24 times the reported earnings of its companies, according to data compiled by Bloomberg. The Ipsa trades for 17.2 times analysts’ 2010 earnings estimates, compared with 13.6 times for the MSCI Latin America index. To contact the reporters on this story: Tal Barak Harif in New York attbarak@bloomberg.net; Ivan Weissman in Santiago atiweissman@bloomberg.net.
Monday, 1 March 2010
Chilean Stocks Post World’s Biggest Drop as Quake Closes Roads
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