Political changes in a country play a big part in disrupting traditional economic flows set in place by a previous administration. However, economic trends do not always wait until the political transition takes place to start shifting. Simply the anticipation for political adjustments in an administration can either catapult or repress economic change in a country. This is what seems to be happening in the country of Chile. Read below to find out where Chile’s rise in investor confidence is coming from and what the effect on investment in the country is looking like. Here is a spoiler: things are looking up for the South American powerhouse.
Let’s Talk Politics: November Election Leans Towards Business Growth
Recent history shows that many countries are electing conservative figures pushing for economic interests and business gains. Chile is no exception, and has seen a rise in popularity for billionaire businessman Sebastian Pinera, a former conservative president, who is now the front runner in polls to win November’s presidential election. Did you just get a feeling of Déjà vu? Don’t worry, we did too.
This big money figurehead is promising economic growth through the business-friendly policies he wants to put in place that will spur investment in the country. While the center-left government stays divided, Pinera seems to be the more appealing candidate to the Chileans citizens looking for change. Unfortunately for the current administration, A fall in the price of copper has been connected to current President Michelle Bachelet, and has shown a hindrance in investment and growth in the world’s No.1 copper exporter.
Bachelet’s tax and labor reforms amid these trying times only seem to make matters worse, and Pinera has promised to adjust her reforms in order to propel the economy upwards. His propositions could revive investment in the country and diminish regulatory risks in certain sectors.
So as Chile leans right, they benefit from the expectations of the political change upon them which has been acting as a trigger for Chile’s rise in the stock market. Below, all the facts and figures shows how much this trigger is causing an explosion in the Chilean market.
Give Me the Numbers: Positive Economic Changes Ahead
Now that Chile’s political dilemma has been dissected, we can understand the positive changes the Chilean market is experiencing. For example, the stock market had its best quarter of growth since the1990s in the first three months of 2017.
The Index performance for Santiago Stock Exchange IPSA Index (IPSA) has risen around 17 percent year to date, making its first-quarter performance the best its been since 1999.
On top of this, emerging markets equities has shown signs of increase, due in part to possible US infrastructure spending, and hopes for Chinese involvement in stabilizing the economy. More positive outlook is seen through different sectors measuring the Chilean economy. Some of these include: (Statistics from NASDAQ)
- In March, Chile’s powerful local pension funds – known as AFPs – increased their exposure to domestic stocks to 8.7 percent of the overall investment, the highest level since September 2014.
- Mutual funds showed signs of returning to the local equities market, reversing a recent trend toward fixed income and external investment. In March they were net buyers of some $130 million worth of local shares, the highest amount in six years.
- A recovery in copper in 2017 and low interest rates have made fixed income investment less attractive.
- Cost-cutting programs and increasing geographical diversification among Chile’s larger listed companies
- Brazil’s and Argentina’s economies recovery.
To learn more about the Chilean economy, the business opportunities to form a company in Chile, and how you might take advantage of these political shifts, please reach out to David from BizLatinHub here.