Eugenio Valk, head of investments at the $6bn Habitat Administradoras de Fondos de Pensiones (AFP) in Santiago is currently heavily weighted toward the Chilean government bond market, though this is more out of a lack of investment alternatives than a faith in bond returns.
Over a third of the total portfolio is invested in the asset class with only 3% dedicated to the corporate bond sector. Due to the high levels of local interest rates against global levels, says Valk, Chil-ean companies are not launching sufficient amounts of bonds in their local market, opting instead to launch bonds in dollars or other currencies in the international marketplace. We have a very short supply of new corporate bonds," he says.
The $30bn Chilean AFP market is dominated by five main carriers , with Habitat currently the largest followed by Provida, with assets at end 1997 of $5.8bn, Cupram ($5.7bn), Santa Maria ($3.9bn) and Protección ($2.9bn) according to figures supplied by Towers Perrin/Marcu y Asociados in Buenos Aires.
The Habitat fund closely follows the typical APF asset allocation, and invests 23% local stocks, 17% mortgages, 39% government bonds, 3% corporate bonds and 3% in-vestment funds, with the rest in banking deposits.
The legal investment limit for equities is 37%, but Habitat have opted for a significantly lower allocation, again for reasons of lack of choice, says Valk. "We can't invest more than 7% of the capital of each company, so if we don't have many big companies to invest in, we can't increase our present purchase of stocks."
But Valk does not see any real rewards this year for in-vestors sticking with Chilean stocks. "I think we will have very poor returns this year - nothing special," he says, adding that equities will most likely perform lower than bonds, which he estimates will return 7%. Rachel Oliver"