(Bloomberg) – Driven by a rapid vaccine rollout and higher copper prices, Chilean stocks have outperformed all other major US indices since November, both in local currency and in dollars.
Many foreign investors have been encouraged by the vaccines, and while local market strategists recognize the advances in vaccines, they are taking a more neutral stance in the equity market as political uncertainty looms on the horizon.
This is the point of view of participants in the first “Chile Market Chat” organized by Bloomberg News. The guests were:
Klaus Kaempfe, Director of Portfolio Solutions at Credicorp Capital Hugo Osorio, Deputy Director of Investment Strategy at Falcom Asset Management Maria Luz Munoz, Director and Strategist at Nevasa
The consensus is that the deployment of vaccination has supported local actions this year. “Once the mass vaccination process picked up speed, the whole world turned to the local market,” Munoz said.
In Chile, the stock market bottomed out in October after the plebiscite on a new constitution, and since then investors have been investing money in local and global stocks. The benchmark S&P IPSA has gained 38% in pesos since its 52-week low hit on November 3. In dollars, this gain is 46%.
Some opportunities remain in over-punished local actions such as banking, while infrastructure projects will benefit industrial sectors, Munoz said. Further lockdowns “could hit local assets in the short term, but they should revert to their positive longer term trend,” Munoz said.
The pandemic has also increased the attractiveness of alternative assets such as real estate and private credit, especially given the low yields in the fixed income market, Osorio said.
When it came to parking money overseas, strategists favored US actions over Europe, given the region’s messy vaccination process and the slow pace of economic recovery, albeit could be a recovery in the second half of the year.
Guests also agreed that the election of a Constitutional Assembly and the drafting of a new constitution should receive more investor attention in the coming months. “Unfortunately, there are additional factors besides vaccination that will have an effect on the market, in particular the political discussion, which so far has been in the background,” Osorio said.
Uncertainty over the content of a new constitution and a loss of momentum for the S&P IPSA equity benchmark weighed on Osorio’s decision to become more equity neutral. Kaempfe also went stock market neutral as soon as he heard of a new round of lockouts.
In the area of local fixed income, guests agreed that higher-rated corporate bonds with shorter maturities were more attractive, with the exception of expensive local bank bonds. Longer bonds, with maturities over 10 years, have been penalized amid uncertainty surrounding a new round of retirement savings withdrawals, pushing pension funds and insurance companies away from buyers natural of these tickets – from the market, said Kaempfe.
“Chile’s nominal and CPI-linked curves provide a zero value under a 10-year span,” Kaempfe said. There could be opportunities beyond this maturity, given the strong push from the longer end.
Globally, opportunities can be found in Latin American high yield debt, guests said.
Bonus Track: Brazil
Consensus was less visible when it comes to Brazil, Latin America’s largest economy, with Osorio and Munoz unsure whether the country has a clear way out of its current pandemic.
“We are very convinced that by the end of the year the world will have the same perception of Brazil that it has today of Chile,” said Kaempfe. Vaccination will gain momentum later in 2021, and while the Chilean market has already planned for rapid local inoculation, Brazilian workers have yet to do so. “Brazil is being punished too much,” he said.
President Jair Bolsonaro has no control over the pandemic and the situation in Brazil does not appear to be a coincidence, according to Osorio. “The country can be a breeding ground for new strains of the virus and could even breed a kind of black swan in the future,” he said.
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