LONDON, Nov 22 (Reuters) - Chile's peso and stocks surged on
Monday after hard-right former congressman Jose Antonio Kast
topped the first-round election, with the focus now shifting to
the composition of congress.
Chile is heading for a runoff with Kast competing with
leftist lawmaker and former protest leader Gabriel Boric on Dec.
19. A strong performance by moderate centre right candidates
bodes well for Kast.
Chile's peso jumped as much as 3.7% against the
dollar to trade at 797.90 - its best day in almost two years -
before giving up some gains to trade at around 809.00.
"Initial results are very bullish for Chilean assets as the
market will have to remove the risk premia priced in last week,"
said Alvin Tan at RBC.
"We have to wait and see if the right-wing coalition is able
to increase or at least maintain the current representation in
order to adjust our medium/long term negative views in CLP."
The main Santiago stock exchange index jumped over
7%, led by retailers Falabella and Cencosud
, along with regional carrier LATAM Airlines
"Fear over the potential for a political shift to the left
has been one factor behind the weak performance of Chile assets
this year, with equities down 10% year-to-date," said Hasnain
Malik, head of equity research at Tellimer in a note to clients.
"Chile is the cheapest hard commodity exporter in emerging
The election has split voters between those seeking a
shake-up of its free-market model and those demanding a harder
line against crime and immigration, after two years of
sometimes- violent protests demanding improvements to living
Chileans also voted to fill 155 lower house seats and 27 of
the 50 upper house seats. Hard-right and conservative lawmakers
looked set to finish with 23 seats in the Senate, and
center-left and hard-left lawmakers were on course for 22 seats,
with the rest going to independents.
"Against the backdrop of the Constitution Convention, the
power distribution in the Congress matters more than in prior
cycles," said Diego Pereira at JPMorgan.
Notwithstanding Monday's gains, Chile's peso has
weakened more than 11% since the start of the year, making it
one of the region's worst-performing currencies in 2021 despite
a more than 20% increase in copper prices.
The premium demanded by investors to hold Chile's
hard-currency sovereign bonds over U.S. Treasuries
narrowed by 7 basis points to 149 bps, though they are still the
worst performer in Latin America, returning -16.5% compared to a
-8% return in JPMorgan's regional sub-index.
Luc D'hooge, head of emerging markets bonds at Vontobel
Asset Management, said a divided Congress would likely limit any
radical legislative changes.
(Reporting by Karin Strohecker, additional reporting by Tommy
Wilkes and Marc Jones in London, Adam Jourdan in Buenos Aires;
Editing by Edmund Blair and Bernadette Baum)