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Chile offered up a negative surprise - BBH

Analysts at Brown Brothers Harriman explained that the weekend elections in Chile offered up a negative surprise.  

Key Quotes:

"Former President Pinera won, but his margin of victory was small and he goes to the second round in a weakened state. Still, we caution investors not to get too negative as a result of the elections."

"Polls suggested former President Sebastian Pinera would handily win this weekend’s election.  Instead, he won only 36.6% of the vote.  Alejandro Guillier, an independent running with the support of Bachelet’s Nueva Mayoria coalition, came in second with 22.7%, and will face Pinera in the second round vote December 17.  Turnout was 46.7%, the lowest since the return of democracy in 1990.

Beatriz Sanchez of the new center-left Frente Amplio alliance was a big surprise, winning 20.3% of the vote.  Before the vote, the polls showed her winning only 8.5% vs. 44.4% for Pinera.  Sanchez now becomes the kingmaker, as Guillier will try to draw support from the other center-left parties.  He has already gotten the support of independent Marco Enriquez-Ominami, who won 5.7% of the first round vote.

We caution investors not to get too negative on Chile as a result of the elections.  The difference in center-left and center-right policies is not that great, though we note that Bachelet did tilt more leftish in her second term, raising corporate taxes and boosting social spending.  Pinera has promised to cut taxes and boost investment, while Guillier said he would continue Bachelet’s policies.

Rather than politics, we think that copper prices will probably be the major determinant of Chilean asset prices.  During Pinera’s first term (2010-2014), the commodity boom was going full force, with copper prices peaking at more than twice the subsequent lows seen in 2016.  Pinera (like Rousseff and many others) lucky enough to catch the tail end of that boom, and investors should realize that Pinera will not be a panacea for Chile’s woes."

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