Chilean assets fall after victory of leftist Boric

Chilean assets tumbled after left-wing candidate Gabriel Boric won a sweeping victory in Sunday’s presidential election, giving him the mandate to push ahead with reform of Latin America’s more open economy.

The peso, foreign bonds and the main stock index registered their biggest drop in months. The currency weakened as much as 3% early Monday, while stocks fell more than 5%.

Losses slowed mid-morning when analysts warned that the market could be overreacting to an overly pessimistic outlook.

Investors worry that Boric’s policies will harm one of the richest economies in Latin America by imposing higher taxes, raising social spending and increasing government regulation on companies.

Boric, a congressman who made his name when he was a student leader, beat his conservative rival José Antonio Kast by more than 10 percentage points in a second round that just a few days ago seemed too close to estimate who would be the winner.

However, the candidate showed a certain level of conciliation in his statements after being declared the winner and said that he would work with a divided Congress to be a president for all Chileans.

“His political platform is not particularly radical,” said Graham Stock, a strategist at BlueBay Asset Management in London. “We have already discounted the risk of large deficits, but it will not get out of control.”

Chile’s benchmark stock index was trading down 3.7% as of 9am New York time, after losing as much as 7.5%. The peso was down 1.9% to 861.55 per dollar. Yields on the country’s dollar-denominated bonds maturing in 2050 rose 8 basis points to 3.3%.

Boric, 35, describes himself as a moderate socialist who rejects the far-left models of Cuba and Venezuela, and his coalition included a variety of left-wing parties. After the first electoral round a month ago, Boric moderated his message to get closer to the voters of the center.

In a speech Sunday, he reiterated that he will seek to maintain fiscal discipline as he advances his reforms, which include raising taxes on the rich and the mining industry, rejecting projects that harm the environment, improving social services and dismantling the system. private pension.

His Administration will face enormous challenges, including a divided Congress, a sharp economic slowdown, the drafting of a new Constitution, and the persistent threat of social unrest.

The volatility of Chilean assets will decrease in the coming days if the president-elect appoints a cabinet that is not “hostile to the markets,” according to LarrainVial Research. The key signal will be the election of its finance minister, the firm said.

Citigroup strategists Fernando Jorge Díaz and Andrea Kiguel said an “instinctive” selloff of the peso after the vote could be an opportunity to buy assets cheaply.

Others were less optimistic.

Chileans came out in droves to vote on Sunday and the election saw the highest turnout since the return of democracy in 1990. Combined with the wide margin of victory, it could be seen as a strong mandate for the victor, according to Win Thin, global director of exchange strategy of Brown Brothers Harriman & Co.

“While Boric has gone to great lengths to emphasize that its economic model will not be radical, it is clear that pro-market policies are likely to be a thing of the past.“, He said. “Chile advances on a new path with an unknown destination”.