Chilean assets gained Monday after opposition conservatives dealt a significant blow to the progressive agenda of President Gabriel Boric in elections for a new Constitutional Council.
(Bloomberg) — Chilean assets gained Monday after opposition conservatives dealt a significant blow to the progressive agenda of President Gabriel Boric in elections for a new Constitutional Council.
The peso strengthened as much as 0.9% against the dollar, leading emerging-market currencies higher, while the benchmark S&P IPSA index rose as much as 1.9%, heading for its highest close since Sept. 14.
Right-wing candidates won 33 seats Sunday on the Council charged with drafting a new constitution, more than the three-fifths majority needed to push through articles without the support of the left. While the vote doesn’t change the balance of power in congress, it will embolden the right in its opposition to proposals to raise taxes and limit the role of private industry in pensions and health care.
“We see this clearly pro-market outcome as a firm indication that the new constitution will be pro-market,” BTG Pactual analysts including Cesar Perez-Novoa wrote in a report. “It is an important development for investors’ confidence.”
Stock moves reflected the declining prospects for reform. Pension fund manager AFP Habitat leaped 11% to 630.25 pesos, its highest since Jan. 2020. Its controller, holding company Inversiones La Construccion advanced 4%. Among members of the IPSA benchmark, water utility Aguas Andinas rose 3.8%. Water rights had been a contentious issue in the constitutional debate.
“The takeaway is that we can largely put to rest any worries about radical left-wing agendas finding their way into the Constitutional reform process,” said Thierry Wizman, director of global currencies and interest-rate strategist at Macquarie Futures USA LLC in New York.
Former student leader Boric, 37, had ridden a wave of public anger to the presidency on a platform of change that included overhauling the country’s constitution dating from the era of dictator Augusto Pinochet.
But a prior attempt to rewrite the charter was overwhelmingly rejected in a September referendum out of voter concerns that it went too far to the left, uprooting the foundations of Chile’s free-market economy, giving indigenous groups greater autonomy and weakening political checks and balances.
Still, there was a word of caution from some analysts. The next draft of the charter must still be approved in a national referendum in December.
“The positive evolution of local assets in the medium-term will depend on the ability of the Constitutional Council to draft a Constitution that can be approved in the next electoral process,” Scotiabank economist Anibal Alarcon said in a note.
(Updates with performance of stocks in second paragraph, analyst comments starting in the fourth.)
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