ANALYSIS-In Chile’s polarized election, marked divisions offer investors a silver lining


Band Rodrigo Campos and Fabian Cambero

NEW YORK / SANTIAGO, December 17 (Reuters)The Chilean presidential election, the most polarized in decades, has shaken the markets. But there may be a silver lining for investors within the marked divisions: buffers from a divided Congress and moderating positions of the candidates to attract key centrist voters.

Sunday’s tête-à-tête sees former left-wing student protest leader Gabriel Boric take on far-right Jose Antonio Kast, both outside of mainstream political parties who have risen up in the wrath of voters and of the change request.

Boric threatened to bury Chile’s neoliberal economic model that dates back to the military dictatorship of Augusto Pinochet. Kast, often compared to Brazilian Jair Bolsonaro, joked about having Pinochet for tea.

But both candidates moderated as the race narrowed to win the main moderate votes. The Congress, elected in November, is split in two between the left and the right, creating a probable brake on radical reform.

“The two candidates made major adjustments to their programs, they introduced notions of prudence and realism”, Chile’s central bank president Mario Marcel said this week, adding that this would reassure investors.

JP Morgan said in a report that he had noted “a shift in moderation” on the part of the two candidates. Congress, he said, would temper Boric’s political plans if he were to win, while a left-wing assembly drafting the constitution would pressure Kast.

Nevertheless, the uncertainty has hit Chile’s assets hard. The peso CLP = has fallen 16% this year against the dollar, among the weakest currencies in emerging markets. The Chilean MSCI Stock Index, denominated in dollars .MICL00000PUS is down 14%.

Distrustful Chileans have pulled assets out of the country over the past two years, in part because of the pandemic, but the uncertainty was also sparked by an eruption of social unrest in 2019 and the current constitutional reform process.

Some $ 10 billion in household and business wealth left Chile this year, according to central bank data through November, on top of the $ 12 billion released last year. The number was closer to $ 2 billion in 2018 and 2019.

“These capital outflows, so far, have been quite similar to those that occurred during the financial crisis of 2008 and 2009,” Marcel said. “These are big numbers, without a doubt.”


The election – currently too close to be called with some polls showing a stalemate – will see Chileans choosing between two very different visions of the future of the world’s largest copper producer and of a bastion of stability in volatile Latin America.

“Chile’s upcoming presidential election is the most controversial since the country’s transition to democracy,” Standard Chartered Bank said in a note, referring to the end of the dictatorship in 1990.

But for many, the constitutional overhaul, which will see a national referendum on the new text next year, poses even greater risks. If approved, it would likely deviate somewhat from the market-driven Pinochet-era text that underpinned Chile’s economic model penned by the so-called Chicago Boys.

“The wild card in Chile is the constituent assembly and the new constitution,” said Carlos de Sousa, emerging market debt strategist at Vontobel Asset Management in Zurich.

Mining could be at the heart of this. Areas such as taxation are under close scrutiny, as are environmental protections, which could impact copper and lithium, an ultralight battery metal in high demand due to the shift to electric vehicles. .

“The Constitutional Convention and the presidential election suspended mining investments,” said Alvaro Merino, director of studies at the National Mining Association (Sonami).

He said Chile had a $ 69 billion investment portfolio over the next 10 years, which required regulations that provided legal certainty, stability and did not compromise competitiveness.

“We must remove the uncertainties so that mining investments are deployed with force,” he said.

A difficult external factor for Chile is the prospect of emerging markets as developed economies prepare to abandon years of loose monetary policy. The prospect of rising interest rates in the United States has already wallet stream dried in some MS.

De Sousa de Vontobel said Chilean assets might be worth a bet because the peso is so weak right now, but increasing political risks would give him pause.

“Strategically, from a long-term perspective, we don’t like Chile very much right now,” he said.

Chilean peso: a difficult year 2021

Chilean peso: a difficult year 2021 (Interactive graph)

(Reporting by Rodrigo Campos in New York and Fabian Cambero in Santiago; Editing by Adam Jourdan and Leslie Adler)

((; @RodrigoCampos;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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