Chilean market ends sharply higher after voters reject new constitution

BHP’s Escondida copper mine in Chile. (Image: Wikimedia Commons)

Chile’s stock market staged a strong rally before paring gains at the close on Monday, a day after Chileans rejected a proposed new constitution, while the top copper-producing nation’s peso firmed as its government prepares to draft a likely more moderate text.

Chileans voted overwhelmingly on Sunday to reject what would have been one of the world’s most progressive charters and a sharp shift from its market-friendly constitution dating back to the Augusto Pinochet dictatorship.

The local stock market rose more than 6% to an all-time intraday high of over 6,000 points, but finished up 2.16%, just shy of 5,800 points, with strong gains in the shares of LATAM Airlines, retailer Cencosud and ferromining company CAP.

Chile’s peso rose more than 4% against the dollar as local markets opened to touch 838.20, a level last seen on June 10, Refinitiv pricing data showed, but it closed up 0.23% at 880.50.

“The outcome may force a more moderate and gradual reform impulse,” said JPMorgan’s Diego Pereira in a note to clients, adding that he expected positive market momentum, thanks to less uncertainty and lower risk premiums ahead.

“We believe both real and financial investors would prefer that if the current constitution has to be reformed, it’s done by the Congress or a committee of notables.”

Shares of London-listed miner Antofagasta rose 3.4% on Monday, outpacing gains in the STOXX Basic Resources Index, which was up 1%.

Chile is home to global copper giants including Codelco, BHP, Anglo American and Glencore as well as Antofagasta.

Chile’s peso has fallen some 3% since the start of the year, making it an outlier in the Latin America region, where currencies from Brazil’s real and Peru’s sol to Mexico’s peso have chalked up solid gains in 2022.

The referendum was also seen as an evaluation of the government, which is struggling with buoyant inflation, an economic slowdown and an internal security crisis, according to experts.

Experts say financial markets’ initial gains may not last as constitutional uncertainty remains a concern.

“As uncertainty hovers over the country, capital flows could slow and ratings downgrades should materialize,” said Brendan McKenna, a strategist at Wells Fargo.

“As those dynamics unfold, the Chilean peso should weaken over the longer term, ultimately getting up towards all-time lows against the dollar.”

Chile’s central bank is expected to raise the benchmark interest rate again this week in the face of persistent inflationary pressures.

After acknowledging defeat, President Gabriel Boric pledged to make adjustments in his government team and work with Congress to draft a new text. Center-left and right-wing parties have also agreed to negotiate.

(By Karin Strohecker, Alexander Villegas, Devik Jain, Valentine Hilaire and Sarah Morland; Editing by Matthew Lewis, Andrea Ricci and Richard Chang)

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