With just a few months to go before the end of the year, it's a good idea to take the time to reflect on the evolution of prices and the most significant variables affecting the fundamentals of the companies comprising the IPSA. So far in 2015, the local stock index has fallen -1.87%, which doesn't tell us very much about what has happened.
Looking more deeply at this, we can see that so far there has been great variation in returns, with the biggest gains being seen in the Consumer sector (20.5%) and the Banking sector (6.8%) to a lesser extent. Meanwhile, the sectors showing the poorest performance were the Industrial sector (-37.9) and Construction (-11.1) to a lesser degree. The rest of the sectors, such as Utilities (1.5%), Retail (-2.3%) and Commodities (-3.7%) have seen returns similar to that of the IPSA. There have been significant differences in returns within some sectors, with the differences between forestry and non-forestry raw materials standing out in particular.
There is a series of both local and external effects that underlie the results of companies in these sectors, which we will discuss below.
As regards the expectations that we had at the end of last year, the biggest negative surprises were the lower price of copper, a more depreciated exchange rate, higher inflation and lower growth expectations for the coming years. We also had a delay in the arrival of winter, which had an additional effect on the retail sector in comparison with a normal year.
Copper has had a high correlation with other commodities, with lower expected demand from China, as well as the slowdown in that country, the global appreciation of the dollar and an expected rate hike by the Federal Reserve being the factors largely responsible for the decline in prices.
Despite how impressive the level may sound, the exchange rate has depreciated in line with the currencies of other countries in the region that are exposed to commodity exports. This is the reason why the Central Bank may not intervene in the currency market, since the decline has been in response to external shocks that could seemingly be more permanent that the turbulence seen seven years ago.
As regards growth in the coming years, expectations have declined gradually and the forecast is that growth should be around 2.5% for the near future. This will go hand in hand with modest growth in consumption, flat investment and government spending that should decelerate compared with the growth there has been this year.
Considering the positive surprises, we can underline the delay in rate hikes in the United States, low unemployment levels, the positive performance of credit portfolios thus far and certain openness of the government to dialogue regarding the structural reforms. In the last few weeks we have also had confirmation of the El Niño weather phenomenon, which should help with rainfall.
The United States appears to be in a good position to begin raising interest rates towards the end of this year. The increase should be fairly gradual and, unlike other processes of rate hikes, it is the lowest starting point for normalization of monetary policy, so the effects should be less intense than those experienced at other times.
In Chile, unemployment levels have remained relatively low, mainly due to the leading role of the government in creating jobs. Together with the decline in the maximum conventional interest rate carried out in recent years —which should have reduced the exposure of banks and trading houses to riskier sectors of the population— this should contribute to the positive performance in defaults shown by lenders so far.
For its part, the new government cabinet seems to be a little more open to discussion of the structural reforms, considering the additional effect that this has had on investment and private sector expectations.
The evolution of the aforementioned factors leads us to maintain a relatively defensive portfolio, where we continue to believe there are sectors where there is value, among which we prefer the Electricity, Banking and Health sectors. Moreover, although we don't yet see a clear turning point, we believe there are certain stocks in other sectors that have already been heavily punished and which have attractive entry levels for investors with longer-term investment horizons within a diversified portfolio.