El Niño, responsible for so much devastation in the Pacific could yet come to the aid of the Chilean economy, as analysts look to exports and dollar-priced utilities to bolster the Santiago exchange.

Events in Asia, lower copper prices and current account deficits all served to rock the Santiago exchange at the beginning of the year, knocking some 14% of values in dollar terms. All that loss and more had been recovered, however, by the end of March, and a continuing recovery is forecast. Interest rates are also expected to fall.

Daniel Tassan-Din at Deutsche Morgan Grenfell in Buenos Aires agrees. We expect a slow down in domestic consumption, and a lower GDP will keep inflation within the government's target figures of 4.5-5%, the indications are that interest rates will fall again around September," he says.

The sectors likely to move the Chilean market upwards are those which are domestically driven, adds Tassen-Din. "Electricity utilities and telecommunications fall into this category, and themselves account for almost 50% of the trading volume," he added. "Investors should probably stay away from exports and commodities, and the banking sector is also likely to lag behind the general upward trend."

Fund managers should be able to anticipate a 10% in-crease in the market in dollar terms said Tassen-Din.

Valentine Carril at Banco Santander in Santiago concurs on returns with a predicted 12%, but believes that the Chilean government faces one of its most uncertain years in economic terms, despite the healthy signs from basic indicators.

"The crisis in Asia and the fall in copper prices have had an effect on the current ac-count deficit and this year's GDP figures. These are the indicators to watch closely, since each one cent fall in the price of copper knocks 0.1% off the current account deficit to GDP ratio" warned Carril.

Meanwhile the Central Bank has increased short term interests rates by two full points already this year, in an attempt to keep the deficit within its own 6% ceiling. Furthermore there was more bad news on the trade imbalance in March when a predicted surplus failed to materialise resulting in an increase in the trade deficit to $555m.

"The government is set to continue with its tight monetary policies, possibly for a further two years, although fiscal policy is likely to be less stringent, particularly in the run-up to the election at the end of next year. Bond prices may be depressed, although yields will be high to the end of this year," adds Carril.

On the equities market shares fall neatly into two piles; those affected by the Asian crisis and those not. The only major export to fall into the latter group is wine. "If you look at our traditional export markets for wine, there is no reason to assume that these companies will not continue to perform well," says Carril.

"But perhaps surprisingly electricity utilities also fall into this category. This is due to two particular circumstances, El Niño and the complicated pricing system for domestic electricity. El Niño means that we have plenty of water reserves to generate power (which lowers generating costs), and the pricing system means that the units are cost-ed in dollars bringing down costs despite the fact the power is for domestic sale."

On the negative side the financial sector has been hit by the Asian macro-econom-ic cycle. There is particular concern about some banks' loan portfolios, and the government is already insisting on more provision for bad debt. "I would also expect the retail sector and airlines to perform less well in the im-mediate future," adds Carril.

Nevertheless, with the ec-onomy set to grow by some 5% this year and inflation on target for 4.8%, he expects fund managers to see a 4-5% return.

In New York Latin America strategists at Morgan Stanley are also concerned about the effects of the macro economy. "We have under weighted Chile for some time," says a spokesman. "The current account deficit is large by Chilean standards, but generally the domestic economy is sound. The market itself is dominated by the electricity utilities, and there are not really many stocks to excite people. This makes it a 'stock-pickers' market, and the retail sector may well be of interest later this year." Kevin Hall"