This year has been exceptional for Chilean equities for many reasons. At the time of writing, the return is close to 50% YTD, with several stocks presenting spectacular returns, improving the valuation of both the stock market and many of its components and, especially linked to our topic today, with strong growth in flows into Chilean stocks, both from local and foreign investors (see Figure 1).

However, within this growing irruption of flows, one factor has not been considered in the growth: the retail investor. According to data from the CMFonly 11% of people in Chile have financial investment products, and there is still a huge margin for improvement to approach countries such as the United States, where the number is close to 60%..

Today we will talk about an event that occurred in Peru, which led to explosive growth in retail flows in the neighboring country. This story will help us reflect on the role of the investor in different markets, and how this type of gap can be closed in processes of stock market "democratization", taking special care to note that not all that glitters is gold.

In 2023 around 14,000 new retail investor accounts were opened on the Lima Stock Exchange; in 2024 that figure experienced significant growth, being closer to 90,000 retail investor openings, an increase of around 475% in just one year, and equally impressive, with 80% of new investors in the under-40 segment.. The trigger for this extraordinary income was the IPO of Inversiones Portuarias Chancay (IPCH) -the vehicle that owns 40% of the mega-port located in the Peruvian town- which received significant coverage in the Peruvian press, generally with a positive connotation. Before continuing with the story, it is important to go back to IPCH's 40% stake in the mega-port of Chancay. Who owns the other 60%? The Chinese state-owned company Cosco Shipping. During the massification of the news of IPCH's IPO, numerous influencers came out on social networks recommending investments in "the Peruvian giant", viralizing some hashtags referring to the project on various platforms, strongly highlighting TikTok, also Chinese-owned. From here on, something similar to what we talked about in the stock meme newsletter happened.a FOMO (Fear of Missing Out), which attracted more investors who did not want to get caught under the new port wave. Much of the channeling of demand occurred through Trii, the most widely used app for investing in the BVL, which between May and July 2024 would have attracted more than 50,000 new investors through its app alone, to the point of straining the Lima Stock Exchange's infrastructure. The result in flows was evident: the general manager of the BVL estimates that the daily amounts traded in shares went from around 6.6 million soles in 2023 to around 14 million soles in 2024, while the official BCRP series of "Amounts traded on the Stock Exchange - Equities" shows a brutal jump in May 2024, when 6,683 million soles were traded in the month, and then a new high in activity for the rest of the year.. Such was the demand for IPCH that, as can be seen in the aforementioned article in La República, out of every seven purchase orders, only one managed to be placed.

After the furor over Chancay came the collateral benefit for stocks not directly related to the port. La República reports the testimony of Julio Plácido, from nuam, who explains that, although IPCH concentrated a good part of the initial interest, the tens of thousands of new accounts did not stop there: the demand "migrated" to local stocks such as Credicorp, BBVA, Alicorp, Ferreycorp, Unacem, Siderperú and InRetail. The latter is the clearest example: from some 400 investors a year ago, it went to close to 2,000, without its business having a direct link to the mega-port. I think it is important to pause and see how within the phenomenon of the greater media flow and the already mentioned FOMO, the access of new investors and the "democratization" of access to the stock exchange resulted in positive variables for the BVL as a whole, with the respective benefit for the development of Peru, which implies that greater amounts are invested in Peruvian productive companies.

Of course, there is also a B side: disappointed investors. One year later, La República headlines bluntly: "Peruvian investors in the Port of Chancay still do not see benefits". It details how many of those who bought near the price peaks are now in the red, and how analysts recall that IPCH is not obliged to deliver financial statements or essential facts on a regular basis, nor to distribute dividends, which makes it difficult to estimate its fundamental value and increases the feeling of "playing blind". The moral that experts repeat is that many of those who lost the most were those who got carried away by the noise of social networks without advice and without understanding that "they are not investing in the port, but in a stock called IPCH".

The bottom line is powerful for any emerging market, including Chile: a well channeled mass of retail investors can change the face of an entire stock market in a matter of months. In Peru, a tangible project (a mega-port that is seen, touched and in the news), an attractive geopolitical narrative (China, the new "silk road"), a low-cost and highly usable app to enter (Trii) and a layer of tiktokers and press amplifying the story were enough to multiply by five the number of new investors and more than double the daily trading volumes. The Peruvian case shows that the "democratization of investments" is not a slogan: it can be a real participation shock that opens opportunities to companies that did not even appear on the retail radar before, but also a minefield for those who enter late, ill-informed or undiversified.

Gabriel Haensgen
Portfolio Manager Financial Funds Fynsa AGF