It isn't El Niño that has caused so much damage to Chile, but the Asian crisis. With a heavy reliance on exports to Asia, Chile has suffered more than most with weaker export demand and falling copper and pulp paper prices. As a result, many of the offshore funds focused on the Latin America region are underweight Chile at the moment.

Market performance for 1997 shows the index down over 20%, which is reflected in lower NAVs for closed-ended funds focused on the country. Fund investors can find attractive valuations now, but the majority of fund managers are neutrally weighted at best in Chile, with concern about the weak peso and rising interest rates.

Forsyth Partners note that the average Chile exposure continues to fall despite historically cheap valuations compared to the rest of the region. The average is now less than 7% as the market continues to suffer from falling commodity prices and the strength of the domestic economy which has led to a deterioration in trade accounts. Higher interest rates are expected to slow down the economy.

The closed-ended Genesis Condor fund is the biggest bull with 21% invested in Chile. By contrast Mark Mobius's open-ended Templeton GS Latin America fund has only 4% invested in Chile. The largest domestic funds are all short term fixed income funds offered by the dominant players Banchile, Santander and Santiago. International groups such as Fidelity, Citibank and Merrill Lynch are principally in-volved in managing money for private pension funds, the Administradoras de Fondos de Pensiones (AFPs), but Fidelity is gearing up to offer retail funds. It is estimated that AFPs channel 65% of their foreign investments through mutual funds. Richard Newell