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A rainfall-adjusted stock market

Emerging market strategists looking at making a New Year foray into Chilean stocks would be best advised to adopt a strategy of "Buy into heavy rain" and "Sell on prolonged sunshine". In a new twist on the term "market barometer", the Chilean market is being dragged down by the weather, as the country endures one of its worst droughts this century.

The hardest hit stocks are the power generators, heavily dependent on hydro-power, which are reduced to using their more expensive thermo-power plants, because of the lack of melted snow running off the Andes.

The generators are second only to the power distributors by market capitalization, and make up over 10% of Chile's $55 billion stock market. The poor performance of stocks such as Chilgener, Colbun and Endesa, the latter down 25% on the year, helped drag down the IGPA index to a new 1996 low in December. It has been a major contributor to the overall gloomy market sentiment, and contradicts standard theory that stockbrokers feel happier when the sun is shining.

The case at Endesa illustrates the point. Even after installing four new diesel turbines to combat the drought effect, it is still having to buy electricity on the spot market to supply its customers.

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