Investing in the Far Far West

Dr. Copper and Political Shift

At the beginning of the 20th century, Buenos Aires was one of the wealthiest cities in the world. A hundred years later, it is far from the top twenty global affluent cities.

But why? Like the US and Australia, Argentina was built by immigrants. The US and Argentina share many similarities in geography, resources, and climate. Though, Argentina is the only state that has defaulted nine times on its debt.

“Why the Nations Fail?” by Daron Acemoglu, a Nobel Prize Winner for economics, gives a plausible explanation. It lays out a simple yet powerful framework for why some nations are rich despite all odds and why others fail regardless of all tangible advantages.

During the Age of Discovery, North and South America took two distinct paths. The South adopted the extractive institutions of the Spanish and Portuguese Empires, while the North followed the inclusive political structure of the Dutch Republic and the British Empire.

Long story short, an inclusive political structure and the (lack of) balance of powers trump natural riches. Look at Venezuela, a tale of oil wealth usurped by communists, transforming a once thriving country into a hellhole. Then, look at Singapore. Lee Kuan Yew rebuilt the country in a matter of one generation. From a swampy backyard, it became one of the most prosperous economies.

Nowadays, South America is at a crossroads. Countries like Chile and Uruguay are faring well, while others like Argentina and Colombia are experiencing volatility.

Leftist governments have dominated the last 15 years. Nayb Bukele in Salvador and Javier Milei in Argentina are signals for change. In Mexico, the center-lefts kept power after Claudia Sheinbaum's elections.

2025 is another eventful year for the region. Chile will hold Presidential elections next year. The incumbent president, Gabriel Boric, lost popularity with his populist measures. In November 2025, he will get a chance to compete for the office again. That said, the outcome is far from clear.

Chile is perfectly positioned to benefit from structural inflation forces. Its vast copper reserves are the wild card that can revitalize the country. Chile is not a bottom fish idea like Argentina in 2022/2023. Nonetheless, Chilean stocks trade at attractive multiples compared to its 20Y averages and most of the EMs.

That said, Chile, Colombia, and Mexico are undervalued compared to Argentina and Peru. The latter two scored impressive gains YTD.