The Presidential Elections in Chile as The Proverbial Catalyst

July LatAm Report: The Chilean Edition

The adoption curve is one of the most potent tools for forecasting market changes. The origin of the concept is the field of information technology. Yet, tech adoption and market narratives share more similarities than we expect.

Any trend in technology, fashion, music, or politics begins as an idea. What matters is the virality of that idea, i.e., how rapidly it transmits among market participants. Moreover, the sample of participants is not homogeneous. In other words, the adoption of new ideas follows a pattern.

Here is how the adoption curve looks in a market context.

The most sensitive group of market participants, or the innovators, is copper traders. They play the long-term game and foresee the structural market imbalances. Bond traders are the next category. They fall between innovators and early adopters.

Unlike equity holders, debt investors have different motives when entering a transaction. The priority is income generation combined with adequate principal safety. Growth is not on the list because the upside potential is capped. In that case, risk-reward is inverted against the bond investors. Thus, protecting against downside risk is paramount.

Therefore, the risk in a particular company, region, or industry is perceived as decreasing if its corresponding bond prices rise and yields drop. This signals to equity investors that the risk is declining. EMs' gov bonds are a perfect example.

Since the beginning of 2025, LatAm government bonds have delivered a strong performance, and equity indices have responded accordingly.

The graph above shows yields YTD change for Mexican, Brazilian, and Chilean 10Y gov bonds and the corresponding equity indexes. The yields have been dropping due to rising bond prices. Equity indices followed suit. Brazil (EWZ), Chile (ECH), and Mexico (EWW) delivered respectable double-digit gains YTD.

Over the coming months, my focus will be on Chile. The country will hold presidential elections on November 16, 2025. For now, Chilean equities are in a robust bull trend, backed by the rising gov bond prices.

Only SQM (NYSE: SQM) falls back due to weak lithium prices. This is a reminder that when we like to bet on a region or country’s economic growth, avoid commodities producers. Miners’ performance is the first derivative of the extracted ore price. Domestic economic developments have a minimal impact on the miners’ profits. That’s why we focus on banks, airports, and utilities; they provide direct exposure to the internal economic changes.

Chilean banks seem to agree. The big three, Banco de Chile (NYSE: BCH), Banco Santander Chile (NYSE: BSAC), and ITAU Chile (BCS: ITAUCL), are outperforming the Chilean equity index. Compared to their international peers, Standard Bank (GETTEX: SKC2), J.P. Morgan (NYSE: JPM), UniCredit (MIL: UCG), and Banco do Brasil (OTC: BDORY), the Chilean banks are relatively inexpensive.

BCH and BSAC deliver impressive ROE and trade at an adequate P/TBV (Price to Tangible Book Value).

Beyond banks, ENEL Chile (NYSE: ENIC) is still trading at low multiples.

ENIC is a typical bottom fish compared to Global Utilities and Global Equities. That said, ENIC offers an attractive upside and limited downside. Of course, in the context of emerging market ideas.

So far, so good. Chilean equities are relatively undervalued. However, it is still missing something; the anticipated presidential election serves as the catalyst.

Until recently, the polls were led by right-wing politicians, but the latest surveys reveal a race now led by left-wing Jeannette Jara, who emerged from the June 29 primary of the ruling coalition. The weekly Cadem poll, published on 13 July, shows Jara at 29 percent, edging out conservative José Antonio Kast at 27 percent, while centre-right veteran Evelyn Matthei has slipped to 14 percent, and populist outsider Franco Parisi holds 8 percent. Chart via America Elects and Cadem.

The Criteria and Pulso Ciudadano polls, released the same week, mirror the trend, placing Jara first and Kast second, with Matthei continuing to decline.

On the right, Kast’s hard-line security message resonates with voters worried about crime, helping him overtake Matthei, who had led most of 2024. On the left, Jara’s decisive primary win (60 percent of votes) unified the governing bloc and vaulted her to national prominence.

Run-off scenarios remain fluid: Cadem finds Kast would beat either Jara (47-36) or Matthei (37-31), whereas Matthei would edge Jara by five points if she reached the second round. With four months until the 16 November first round, polls suggest a polarized contest between Kast and Jara; yet, high undecided levels (approximately 25 percent) leave room for further swings.

In summary, the odds are still favorable for the right-wing candidates. Of course, the probability of a surprise, Jara’s landslide victory or run-off victory, is never zero.

That said, the new polls caused some stress among investors, and Chilean equity prices dropped. Furthermore, copper tariffs added extra uncertainty. Let’s crunch some numbers to estimate the impact of the copper tariffs on Chile.

Chile is the world’s leading copper exporter, and in 2024, its copper exports to the United States reached approximately $5.86 billion, with total copper exports valued at around $20.1 billion. This means the US accounted for between 28% and 29% of Chile’s copper exports that year. Despite this relatively high percentage, the bulk of Chile’s copper still goes to Asian markets, particularly China. Chile’s copper export strategy remains heavily oriented toward maintaining and expanding its reach in diverse international markets, thereby reducing vulnerability to changes in demand from any single country.

Remember, the copper traders are the innovators. Dr. Copper is holding his stance on a no-recession scenario.

A further price increase is a highly probable scenario. Stronger copper prices would offset the impact of copper tariffs. A higher-order effect is higher Chilean equity prices.

Jeannette Jara’s surprising polls, along with copper tariffs and the US dollar's recovery against EM FX, pushed Chilean equities into a correction phase. For reference, BCH monthly chart.

BSAC and ENIC charts are the same. This pullback is an opportunity to add size or open initial exposure to Chilean equities.

---

PS: For more actionable and asymmetric ideas on Latin America and beyond, consider TheOldEconomy premium plans: Researcher and Strategist.

Thank you for being part of TheOldEconomy. Here’s to your continued growth and success, one wise decision at a time.

Invest wisely,
Mihail Stoyanov
Founder, TheOldEconomy

---

Everything described in this site, TheOldEconomy.substack.com, has been created for educational purposes only. It does not constitute advice, recommendation, or counsel for investing in securities.

The opinions expressed in such publications are those of the author and are subject to change without notice. You are advised to do your own research and discuss your investments with financial advisers to understand whether any investment suits your needs and goals.