Chile’s peso and equities firmed on Monday, while local bond yields edged lower, as markets interpreted the first-round presidential vote as opening the door to more market-friendly policies.
Far-right candidate José Antonio Kast is now seen as the frontrunner for the December 14 runoff despite finishing slightly behind government coalition candidate Jeannette Jara on Sunday.
Neither the Senate nor the lower house produced a clear majority, but analysts expect Kast would still be positioned to advance elements of his agenda, including tax-related reforms.
The combined vote share for right-leaning candidates exceeded 50%, suggesting Kast is well placed to consolidate support in the second round, said Thierry Larose, portfolio manager at Vontobel.
“This outcome is seen as moderately bullish for Chilean assets,” Larose said, according to the Reuters report. “A likely Kast presidency, combined with a right-leaning but fragmented Congress, is expected to support local assets such as Chilean bonds and the peso.”
Peso strengthens against dollar and regional peers
After the first-round results, Chile’s peso strengthened more than 1%, its biggest gain in over a month.
The currency has risen about 8.5% so far this year, though it continues to lag regional peers such as Brazil, Colombia and Mexico, whose currencies have each gained more than 14% in the same period.
The peso’s recovery comes as the U.S. dollar has weakened roughly 9% this year against the currencies of many major U.S. trading partners.
Analysts said the Chilean peso may have further upside if expectations of a right-leaning government are confirmed.
In premarket trading, the MSCI Chile ETF rose 2.1%. Over the year, Chile’s equity benchmark has gained more than 46%, outperforming the broader MSCI emerging markets index, which is up about 29%.
Analysts say that if José Antonio Kast prevails, markets may welcome the prospect of renewed fiscal consolidation and policies aimed at boosting investment to counter Chile’s weaker economic growth.
Nafez Zouk, emerging-market sovereign debt analyst at Aviva Investors, said the likelihood of more focus on macroeconomic management would reassure investors.
He noted that the main debate among candidates has centred on the scale of fiscal consolidation rather than whether it should occur at all.
Shift in electoral priorities
Law-and-order concerns and immigration have become the defining issues of Chile’s election, a stark shift from the left-leaning enthusiasm and constitutional overhaul efforts that helped propel President Gabriel Boric to office. Boric is barred from seeking a second term.
The December runoff now sets up a contest between two sharply opposed ideological poles.
A victory for José Antonio Kast would usher in Chile’s most right-leaning administration since the Pinochet era, underscoring how dramatically the country’s political mood has shifted in recent years.
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