(Bloomberg) — Chilean assets gained Monday after opposition conservatives dealt a significant blow to President Gabriel Boric’s progressive agenda in elections for a new Constitutional Council.
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The peso strengthened as much as 0.9% against the dollar, leading emerging market currencies higher, while the benchmark S&P IPSA rose as much as 1.9%, heading into the close highest since September 14.
Right-wing candidates won 33 seats in the Council tasked with drafting a new constitution on Sunday, more than the three-fifths majority needed to approve the articles without the support of the left. While the vote does not change the balance of power in Congress, it will embolden the right in its opposition to proposals to raise taxes and limit the role of private industry in pensions and health care.
“We see this clearly market-friendly result as a strong indication that the new constitution will be market-friendly,” BTG Pactual analysts, including César Pérez-Novoa, wrote in a report. “It’s an important development for investor confidence.”
Stock movements reflected the diminishing prospects for reform. Pension fund manager AFP Habitat rose 11% to 630.25 pesos, its highest since January 2020. Its controller, holding company Inversiones La Construccion, advanced 4%. Among the members of the IPSA benchmark, the water company Aguas Andinas increased by 3.8%. Water rights had been a contentious issue in the constitutional debate.
“The bottom line is that we can largely end any concerns about radical left agendas being in the constitutional reform process,” said Thierry Wizman, head of global currencies and interest rate strategist at Macquarie Futures USA LLC in New York. .
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Former student leader Boric, 37, had ridden a wave of public anger to the presidency on a platform of change that included overhauling the country’s constitution dating back to the era of dictator Augusto Pinochet.
But an earlier attempt to rewrite the charter was overwhelmingly rejected in a September referendum over voter concerns that it veered too far to the left, uprooting the foundations of Chile’s free-market economy, giving indigenous groups a greater autonomy and weakening political balances.
Still, there was a word of caution from some analysts. The next draft of the charter still needs to be approved in a national referendum in December.
“The positive evolution of local assets in the medium term will depend on the ability of the Constitutional Council to draft a Constitution that can be approved in the upcoming electoral process,” Scotiabank economist Aníbal Alarcon said in a note.
(Updates with stock performance in the second paragraph, analyst comments starting in the fourth.)
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