By Rodrigo Campos

NEW YORK (Reuters), Chile’s market dominance is being threatened by its economic, political outlook. But investors see a potential opportunity in South America as it heads towards a presidential race with no clear favourite and a rewriting of its constitution.

After the victory of Jose Antonio Kast, the right-wing presidential candidate in Chile, Chile’s stock markets are now back in the black. However, the dollar-priced index is on course for its fourth consecutive negative annual return.

The year is almost over for an index of Chilean stock traded on U.S. markets.

Partly, the sharp currency decline is to blame. However, the drops have occurred despite Chile expecting to see double-digit growth in its GDP this year. Chile’s central bank is one of the most hawkish because the economy has overheated.

At the Economic Society Barclays (LON) According to LON, no matter which of the two top polling candidates Kast or Gabriel Boric wins, constitutional reform “implies an likely deterioration in the country’s fundamentals.”

JPMorgan’s (NYSE:) research shows that the public sector will have a higher level of debt than they currently estimate in a Kast/Boric win scenario.

“The far-left program encompasses a hefty fiscal expansion relying on what we think are too optimistic assumptions of about 40% of the planned tax collection,” Diego Pereira, chief economist for the Southern Cone & Peru at JPMorgan, said in a note.

“On the contrary, far-right candidates seem too optimistic about the possibility of lower spending and taxes, and their potential impact on economic development, especially given the probable mandate to increase unfunded social entitlements stemming out the Constitutional Convention.”

Chile elected in May a Constitutional Convention in which independent, left-leaning and center-left candidates won over two-thirds each of its seats.

Re-drafting the Augusto Pinochet constitution of dictatorship-era is likely to have a major impact on mining and raise taxes.

The country is attractive to foreign investors because of the rise in commodity costs this year. This includes for Chile’s biggest export. Brian Jacobsen is a senior investments strategist with Allspring Global Investments. He says that prices would not fall below current levels but they will likely stay in an area which “benefits countries like Chile, as far their export orientation.”

Jacobsen explained that, despite there being some risk in the future election, Jacobsen did not consider either candidate to be a threat to an ongoing economic recovery.

“Nobody promises people bread or circuses.”

Buy at a Discount

Local market leaders are Vapores Shipping Company, with a near 1500% increase year-to-date and SQM miner and CCU brewery, each up slightly more than 50% in 2021.

The third quarter saw a record $1.67 trillion in foreign net flows to Chilean stocks, according to data from Institute of International Finance. That’s more than double the net $200 million last year and over the $1.27billion that was seen during the first nine months of 2019

EM specialist Tellimer has added Chilean stocks as a top pick for the month due to the fact that they are “cheap”, and a play against copper demand.

The policy aspect of the statement is that Chile has legal protections in place for its orthodox economic policy.

However, Daniel Grana of Janus Henderson’s EM equity portfolios said that the uncertainties brought about by the constitutional amendments are too extreme. They suggest a desire to abandon Chile’s economic model.

He said, “We don’t know what the final result will be but it seems likely that there would be a lot of social spending to offset a higher tax rate for the mining sector.”

Grana stated that political governance would reduce the benefits to minority shareholders in a situation where there is a strong copper outlook.