Chile, President elect’s new gabinet: a blow of fresh air

The cabinet of the new government that will be sworn in on 11 March this year was officially announced on Friday, January 21. After president-elect Gabriel Boric sent various signs of moderation over the last few months, the market had high expectations for his appointments. In general, the cabinet mixes different elements: a predominance of independent professionals (8 members), greater proximity to the Chilean center left than to the extremes, a majority of women and mainly members with careers in academia, the public sector, and multilateral agencies. His inner circle, known as the “Political Committee,” will be composed of his closest collaborators and former student leaders: Izkia Siches (Ind.) in the Interior Minister and Public Security, Giorgio Jackson (RD) in the General Secretariat of the Presidency and Camila Vallejo (PC) in the General Secretariat of Government. In addition, this group will include Finance Minister Mario Marcel (Ind) and the Minister of Women and Gender Equity Antonia Orellana (CS).

One of the posts that aroused the most expectation was the minister of finance, where the economist Mario Marcel, current president of the Central Bank, was appointed. Marcel has extensive national and international experience that ranges from academia to participation in organizations like the World Bank, the OECD, and the Inter-American Development Bank, in addition to having served as budget director in the Ricardo Lagos administration. The local market has strongly recognized his track record and rumors of his appointment have had a positive impact on local assets in recent weeks. Another interesting name is the appointment of the attorney Antonia Urrejola as Foreign Minister, who has extensive experience in international relations. She has advised the OAS since 2006 and was Commissioner for the Inter-American Commission on Human Rights between 2018 and 2021, an organization she has presided over since 2021. She also worked at the Interior Ministry and various other entities during the Ricardo Lagos administration.

In conclusion, the combination of a new cabinet and a balanced Congress gave significant relief to the market, making the remaining source of uncertainty the Constitutional Convention. Regarding local assets, recent events would take pressure off the Chilean peso and domestic rates and shares. Thus, the logic followed in this election seems to resemble the election of Pedro Castillo in Peru, whose victory sparked widespread fear among investors but in practice has shown greater restraint in light of congressional oversight, where the opposition has a majority. With the new government about to begin, the more moderate position could be an important signal for two major elections in the coming months: Brazil and Colombia. In both cases it is to be expected that more disruptive or negative policies for the market will face a "reality check" once in government, which would be beneficial for domestic assets in their respective countries.

Regarding our Latin American equity strategies, we are currently overweight in Chile because we believe that there are high quality, less cyclical companies with low regulatory risk that are trading at multiples that we believe are unjustified. Strong discounts, even compared to the rest of the region, which is already heavily discounted. Our OW is particularly focused on the telecommunications, staple consumption, and the banking sectors.

In terms of our Latin American debt funds, we are underweight in Chile versus the benchmark because Chilean corporate bonds are generally investment grade (IG) and have significant weight in the benchmark index. These names are characterized by having “little spread” and long durations (Andina, Celeo Redes, Colbún, Transelec, SQM), which we currently prefer to avoid given the scenario of Fed rate hikes. Meanwhile, our exposure to Chilean names is focused on high-yield (HY) and bonds with short durations that have a return-on-risk profile that is appropriate to our portfolio and where we believe there is value. These are deleveraging stories with results momentum that have medium term catalysts (Asset Sales, M&A). We are currently overweighting AES Andes, ATP Tower, Eléctrica Cochrane, Enjoy and VTR bonds.