JPMorgan-Chile Equity Strategy Money Flowing Out of Time Deposits. Ti...-107731686

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Latin America Equity Research

21 April 2024

JPMORGAN

www.jpmorganmarkets.com

LatAm Equity Strategy

Diego Celedon AC

(56-22) 425-5245

diego.celedon@jpmorgan.com

Inversiones J.P. Morgan Limitada

Emy Shayo Cherman

(55-11) 4950-6684

emy.shayo@jpmorgan.com

Banco J.P. Morgan S.A.

Adrian E Huerta

(52-81) 8152-8720

adrian.huerta@jpmorgan.com

J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P.

Morgan Grupo Financiero

Figure 1: Individuals Time Deposits (US

$mn)

28,000

29,000

30,000

31,000

32,000

33,000

Jan.2023

Feb.2023

Mar.2023

Apr.2023

May.2023

Jun.2023

Jul.2023

Aug.2023

Sep.2023

Oct.2023

Nov.2023

Dec.2023

Jan.2024

Feb.2024

Mar.2024

Source: Central Bank

Figure 2: Participants – Local Equity

Mutual Funds

60,000

70,000

80,000

90,000

100,000

110,000

120,000

Source: Mutual Fund Association

Figure 3: AUM – Local Equity Mutual

Funds (US$mn)

1,000

1,500

2,000

2,500

3,000

3,500

Jan.18

Jun.18

Nov.18

Apr.19

Sep.19

Feb.20

Jul.20

Dec.20

May.21

Oct.21

Mar.22

Aug.22

Jan.23

Jun.23

Nov.23

Source: CMF

At the beginning of the year we highlighted that the high levels of short-term

interest rates had driven allocation to time deposits to a historical record, close to

US$20bn above the pre-pandemic average (link to our note here). While this over-

allocation was justified by the 11.25% level that the monetary interest rate reached

in July 2023 (and the time deposit rate, for that matter), our thesis was that as

interest rates come down, these resources should look for assets with higher

returns. These include local equities, which have been out of favor from individual

investors in Chile, reflected in an allocation of the mutual fund system of only 2.1%

of total AUM in Chilean stocks. After several months of individuals keeping a

stable exposure to time deposits, the trend started to shift in March, with deposits

held by individuals dropping by US$270mn, likely marking the beginning of a

normalization trend. Coincidentally, inflows from the mutual fund industry into

local equities reached a 6-year monthly record in March, totalling US$168mn of

investments (more details on our last Flow of Funds note). Looking forward, the

mix of time deposits expiring, still declining interest rates and low equity valuation

should continue to drive this trend, in our view. We remain OW in Chile and our

top picks are SQM (OW, Lucas Ferreira), Parauco (OW, Marcelo Motta), Enel

Chile (Neutral, Henrique Peretti), CMPC (OW, Rodolfo Angele) and Itau Chile

(OW, Yuri Fernandes).

•After several months of stable AUM, resources allocated in time deposits

by individuals showed the steepest monthly decline of the last 12 months

in March. As of last month, individuals held US$31.62bn in time deposits in

Chile, showing a US$268mn decline compared to the stock registered in

February. This was the largest monthly decline since the peak reached in July

2023 (US$32.3bn). Looking forward, we believe this trend should continue,

and the potential for re-allocation is quite relevant as the pre-pandemic levels

of exposure to time deposits by individuals was close to US$15 billion.

•Flows could go to Local Equity Mutual Funds, as they have been

increasing participants and AUM. Currently at US$1,393 million, AUM in

local equity mutual funds remains below the 2018-2021 average of US$2,076

million but shows promising growth from December 2023. Participant

numbers have also modestly increased, from 72,410 at the end of 2023 to

72,809.

•As a reference, in 2017 the mutual fund industry bought US$1.1bn of local

equities. Last year mutual funds in Chile were net buyers of a timid US$85mn

of local equities, after seeing more than US$240mn divestment in 2022. While

the absolute average of the last 10 years of flows reaches US$340mn, the peak

was reached in 2017, with more than US$1.1bn of inflows to local equities,

providing some perspective on how relevant these flows could turn looking

forward. In terms of specific stocks, March inflows were mainly explained by

SQM as the largest investment (US$22.9mn), followed by Santander (US

$16.1mn) and Falabella (US$14.2mn). Finally, they were sellers of Itau (-US

$1.8mn), Parque Arauco (-US$1.0mn), and Enel Chile (-US$0.9).

See page 5 for analyst certification and important disclosures, including non-US analyst disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that

the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single

factor in making their investment decision.

Chile Equity Strategy

Money Flowing Out of Time Deposits. Time for

Equities?

Diego Celedon AC

(56-22) 425-5245

diego.celedon@jpmorgan.com

Latin America Equity Research

21 April 2024 JPMORGAN

Is March marking the beginning of outflows from time

deposits?

Figure 4: Monetary Policy Rate and Time Deposits Rate

10%

12%

Jan.2010

Jun.2010

Nov.2010

Apr.2011

Sep.2011

Feb.2012

Jul.2012

Dec.2012

May.2013

Oct.2013

Mar.2014

Aug.2014

Jan.2015

Jun.2015

Nov.2015

Apr.2016

Sep.2016

Feb.2017

Jul.2017

Dec.2017

May.2018

Oct.2018

Mar.2019

Aug.2019

Jan.2020

Jun.2020

Nov.2020

Apr.2021

Sep.2021

Feb.2022

Jul.2022

Dec.2022

May.2023

Oct.2023

Mar.2024

30 Days to 90 Days Monetary Policy Rate

Source: Central Bank

Time deposits held by individuals, as shown in Figure 5, mirrored the increase of

interest rates, steadily rising from January 2022 to March 2023. However, when interest

rates began to fall, time deposits did not follow. The AUM in these assets practically

plateaued after the rate peaked at 11.25%. Only by the beginning of 2024 did we start to

see some outflows, as individual time deposits started to gradually decrease, with March

posting the fastest acceleration in this outflows trend.

Figure 5: Individuals Time Deposits (US$bn)

10,000

15,000

20,000

25,000

30,000

Jan.2019

Mar.2019

May.2019

Jul.2019

Sep.2019

Nov.2019

Jan.2020

Mar.2020

May.2020

Jul.2020

Sep.2020

Nov.2020

Jan.2021

Mar.2021

May.2021

Jul.2021

Sep.2021

Nov.2021

Jan.2022

Mar.2022

May.2022

Jul.2022

Sep.2022

Nov.2022

Jan.2023

Mar.2023

May.2023

Jul.2023

Sep.2023

Nov.2023

Jan.2024

Mar.2024

Source: Central Bank

Diego Celedon AC

(56-22) 425-5245

diego.celedon@jpmorgan.com

Latin America Equity Research

21 April 2024 JPMORGAN

Figure 6: Individual Time Deposits Since 2023 (US$mn)

28,204

28,965

29,732

30,461

31,243

32,053

32,366 32,188 32,009 32,138 32,109 31,914 31,985 31,887 31,620

28,000

28,500

29,000

29,500

30,000

30,500

31,000

31,500

32,000

32,500

33,000

Source: Central Bank

Figure 7: Mutual Funds Participants

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Feb.2010

Sep.2010

Apr.2011

Nov.2011

Jun.2012

Jan.2013

Aug.2013

Mar.2014

Oct.2014

May.2015

Dec.2015

Jul.2016

Feb.2017

Sep.2017

Apr.2018

Nov.2018

Jun.2019

Jan.2020

Aug.2020

Mar.2021

Oct.2021

May.2022

Dec.2022

Jul.2023

Feb.2024

Money Market Participants (Left Axis) Local Equity Mutual Fund Participants (Right Axis)

Source: Mutual Fund Association

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LatinAmericaEquityResearch21April2024JPMORGANwww.jpmorganmarkets.comLatAmEquityStrategyDiegoCeledonAC(56-22)425-5245diego.celedon@jpmorgan.comInversionesJ.P.MorganLimitadaEmyShayoCherman(55-11)4950-6684emy.shayo@jpmorgan.comBancoJ.P.MorganS.A.AdrianEHuerta(52-81)8152-8720adrian.huerta@jpmorgan.comJ....

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