Markets: Chilean stock market collapses in doubts about the country’s future

SANTIAGO, Chile.- The defeat of traditional Chilean political forces against emerging left forces in the election of delegates who will draft a Constitution to replace the one inherited from the dictatorship of Augusto Pinochet, raises doubts about the future of a country known for its free market model, according to experts.

The election rocked local markets, leading the Chilean peso to lose more than 2% in mid-session, as the leading stock market index approached a 10% collapse. The country’s sovereign bonds also suffered from the result.

Fitch’s agency said the country’s current rating is very strong and will be able to withstand significant political and economic uncertainties following the downgrade in October 2020.

However, he stressed that the new constitution could create risks for governance, the fiscal and debt situation and medium-term growth prospects.

Joaquín Villarino, chairman of the Mining Council, which brings together the major mining companies of the world’s largest copper producer, said that the challenge for delegates will be to integrate the various visions in a balanced way and to focus on finding agreements.

“We believe that it is essential that this space for dialogue is characterized by serious and well-founded discussions. If, on the contrary, they are ill-informed discussions and with short-term views, there will be reasons for pessimism, ”the executive said in a statement sent to Reuters.

Political unrest in two major copper-producing countries, Chile and Peru, increases uncertainty over metal supplies.

Growing discontent with deep inequalities, which sparked a social epidemic at the end of 2019, led to a constitutional process, which over the weekend led to a motley election of 155 delegates to draft the new text.

“There is a rejection of the political system in general and this manifests itself in the level of abstention, which is close to 58%. Secondly, there is a rejection of traditional political parties, which obtain the lowest votes compared to all previous elections, ”said political scientist Guillermo Holzmann.

For the expert, the relationship between the State and the market would be modified by trying “to be efficient, close and at the service of citizens”.

The ruling center-right failed to win a third of the seats, a key figure in directly blocking possible drastic changes to the model.

“Heightened political uncertainty ahead of the presidential election is likely to affect assets going forward, as markets are likely to interpret this as a full-scale survey of Chilean sentiment,” Citi said in a note. to customers.

The election result is another setback for conservative President Sebastián Piñera, whose popularity has plunged into social discontent and his government’s attempt to block withdrawals of savings from pension funds to ease the crisis triggered by the pandemic. of coronavirus.

The eye is now on the agreements that the group of constitutional delegates can reach, led by independents, albeit with a clear majority of movements critical of traditional politics.

Reuters Agency

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