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Chile: wind of change

Notes from the road

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by  RBC Emerging Markets Equity team, C.Enemaerke, CFA Feb 12, 2025

Flying down into Santiago, over the beautiful, snow-covered Andes mountains, we were eager to see what Chile had to offer. Historically renowned in Latin America for its high quality of institutions, political stability, and rule of law, its reputation has been challenged in recent years. However, with a general election ahead, this could be a pivotal year for the country.

In our full note, we discuss:

  • Political volatility: political instability has brought Chilean equity market valuations down over the last few years. The de-rating of the market stems from several socio-political events, including social unrest and failed attempts of constitutional, tax and pension reforms.

  • This year’s general election: this will represent a pivotal moment for the country. Despite an increase in social spending in the last two presidential terms, current approval ratings for the government and President Boric are low. A dogmatic shift towards the centre-right is likely.

  • The Argentina effect: Chileans are increasingly starting to take note of what is happening ‘across the mountains’, with Argentina’s President, Milei, successfully improving the economic situation in the country.

  • The banking sector: as a highly concentrated sector, and with less disruption from fintechs than in other countries, Chilean banks have maintained strong profitability for many years. They are known for their strong profitability, robust management, and corporate governance.

  • The future for corporates: in addition to politics, companies are watching changes in copper prices, the path of interest rates, the amount of FDI into the country, and progress on longer-term reforms. Chile has been undergoing one of the stronger easing cycles in emerging markets, and lower rates could also support earnings growth expectations.

It feels that the next couple of years will be very meaningful for Chile, and perhaps the country will once again move towards its strong reputation of the past.

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