Oil Collapse Makes Chile a Buy for BTG as Mexico Dims

The plunge in oil to the lowest level since 2009 is making Chilean stocks attractive while dimming the outlook for Mexican equities, according to BTG Pactual.

The Sao Paulo-based investment bank boosted its recommendation for Chilean shares to overweight and cut its rating on Mexico’s stocks to neutral, citing the impact of declining oil prices on the nation’s respective economies.

Crude dropped to below $45 a barrel, after plunging almost 50 percent last year, amid speculation that U.S. stockpiles will increase, exacerbating a global supply glut. Chile, whose economy probably grew last year at the slowest pace since the 2009 recession, imports more than 90 percent of its oil requirements.

“Chile benefits from lower oil prices,” BTG analysts including Carlos Sequeira and Antonio Junqueira wrote in a research note. In addition, a weaker currency, falling interest rates and low valuations “may provide a relatively favorable setting for a rebound.”

The slide in Chile’s IPSA index of equities from a 15-month high on Sept. 3 sent its valuation to 14.3 times estimated earnings, or 8.6 percent below a five-year average, according to data compiled by Bloomberg. The peso has slumped 15 percent in the past 12 months.

Chile’s gross domestic product expanded 0.8 percent in the third quarter from a year earlier, the worst performance since 2009, as the lowest interest rate since 2010 failed to revive a slump in investment.

In Mexico, the impact of lower oil prices comes mostly through its fiscal accounts as crude makes up 11 percent of its exports, according to BTG Pactual. Should oil stay at these levels, there will be a negative effect in 2016 and beyond, according to the analysts.

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