Market: Chilean stock market collapses after leftist candidate Gabriel Boric triumphs


(BFM Bourse) – The Santiago Stock Exchange takes a severe blow on Monday, the day after the left-wing candidate Gabriel Boric won over the far-right in the second round of the presidential election. The main index, IPSA, is down more than 6% at midday.

In South America, the stock market preference for far-right candidates is confirmed again Monday in Chile, where the main index of the Santiago Stock Exchange (IPSA) slips 6.15% to a low two months.

The Chilean market therefore falters in reaction to the victory of Gabriel Boric Font on Sunday in the second round of the presidential election. The far-right candidate José Antonio Kast had the favors of the market: the IPSA had thus warmly welcomed (+ 9.25%) his arrival at the head of the first round of the ballot on 21 November last. We also remember the euphoria that reigned on the Sao Paulo Stock Exchange after the election of Jair Bolsonaro in January 2019.

Gabriel Boric, for his part, was elected on the promise to set up a welfare state system, a major change in the country considered the laboratory of liberalism in Latin America but which has become the most unequal in the OECD. It intends to carry out a major tax reform to involve the richest in its program of better access to health, education and the creation of a new retirement system, now entirely private.

But he promised Sunday evening in front of his supporters “more social rights while remaining fiscally responsible”. An announcement also for his detractors who qualify him as a “communist” for his alliance with the Communist Party in a vast coalition, also including the center-left, which brought him to power.

At the end of the health crisis, Chilean economic activity should also experience a difficult tomorrow. After a 5.8% drop in 2020 due to containment measures imposed by the pandemic, Chile’s GDP rebounded to end the year 2021 with growth of 11.5%. But much of that growth has been fueled by government grants ($ 3 billion) to boost an economy ravaged by the pandemic, and by individual withdrawals from private pension funds ($ 50 billion).

In a context of inflation, the Central Bank is expected to further raise its key interest rate, which has already risen from 1.5 to 4% in two increases since October. This should be raised to 6% next year, more than double the target range.

Experts also point to the lack of a majority of the new 35-year-old president in Parliament. It will thus be “difficult for him to satisfy the social agenda” according to an observer, who considers that “he will not be able to carry out his entire program if broad agreements are not concluded”.

Another immediate consequence of the election of Gabriel Font: the Colombian peso is in free fall on the foreign exchange market. A Colombian peso is traded around 5 p.m. at nearly 870 dollars (-3% compared to the day before), exceeding its previous historic peak in mid-March. At the start of 2021, a peso was trading around 700 dollars instead.

(with AFP)

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