Chilean peso devalues, Santiago stock exchange collapses after traditional parties defeat in weekend elections

The Chilean peso and Chile’s main sovereign bonds fell in the early hours of operation on Monday after the poor result achieved by traditional parties in Sunday’s elections. The elections showed an advance by the independent center-left parties and the left-wing parties which left the right in the minority in the face of the Constituent Convention which will reform the constitution, in addition to generating several surprising results in the elections of mayors, governorates and the posts of advisers. For its part, the Santiago Stock Exchange collapsed by nearly 10%.

The Chilean peso emerged as the worst performing currency in a basket of emerging currencies prepared by Bloomberg. The currency fell 3.3% against the US dollar, followed far behind by the 0.6% decline in the Indonesian rupiah. and a 0.53% drop for the Korean won.

The country’s sovereign bonds also suffered a decline, with declines of around 2% on the various species issued by the Trans-Andean Treasury.

Before the open, Chilean stocks and the peso were expected to open lower, after the ruling center-right coalition suffered a surprising defeat as voters backed independents for the body that will draft the country’s new constitution .

“An ‘independent’ constitutional convention suggests a regime of greater uncertainty to come,” JP Morgan analysts wrote in a note to clients.

During this Saturday and Sunday, Chile turned to the polls to elect future councilors, mayors, regional governors and the 155 constituent constituents who will be tasked with drafting a new Constitution for the country.

“An ‘independent’ constitutional convention suggests a regime of greater uncertainty to come” (JP Morgan)

The results of the Electoral Service of Chile (Servel) with the preliminary results of the Constituent Convention showed that with nearly 81.63% of the polls scrutinized, the 83 independent lists accumulated 31% of the votes, gaining 48 seats of the 155 available. of the Constitutional Convention.

Meanwhile, the “Vamos Por Chile” list, which brought together the right-wing and government sectors, obtained only 23.9%, obtaining 37 seats, thus excluding the possibility of obtaining a third of the Constituent Convention, what it would have contributed to impose its policies in the drafting of the new Constitution and block any type of change.

In third place was the “I Approve Dignity” list with 18.1% of the vote, which is made up of traditional left-wing parties. The latter only obtained 28 seats.

“The way in which the assembly that should draft the constitution has been constituted generates uncertainty as the traditional parties and the defenders of the current model are losing absolute weight” (Quintero)

According to operators of the Chilean market, the election results are sufficient to explain the movement of assets on Monday.

“Firstly, the way in which the assembly that should draft the constitution has been constituted creates uncertainty as the traditional parties and the defenders of the current model lose absolute weight. There is uncertainty as to the direction this may take. We see this effect immediately in the exchange rate, ”he told Infobae. Rodrigo Quintero, manager of international fixed income securities at Renta 4, a brokerage firm on the Santiago de Chile Stock Exchange.

“As for sovereign fixed income bonds, I think this has an impact in the eyes of investors since the rules of the game are going to be redesigned, which will encourage many of them to incorporate this risk factor which is more important than what is happening. reflected in their prices. Although an immediate impact is perceived, more speculative in any case, the levels will probably be adjusted but in a different time horizon as the information from the new rules comes out. For this, the assembly has 9 months to draft the new constitution, ”added the analyst.

Stock market crash

The Santiago Stock Exchange fell 9.6% at the start of its operations on Monday after the result of the constituent elections this weekend. Early in the morning, the Selective Stock Price Index (IPSA), the main indicator of the Chilean stock exchange comprising the most traded stocks, fell 9.6% to stand at 4,135.38 units.

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