The stock market closed 9.3%, the biggest decline since the start of the pandemic in March last year, while the peso fell 2.3%.
Chilean assets fell after the ruling coalition suffered a surprise surprise in the elections for a constituent assembly, firmly putting the drafting of a new letter in the hands of the left.
The benchmark stock closed at 9.3%, the biggest drop since the start of the pandemic in March last year, while the weight fell 2.3%. Yields on Chilean peso bonds outstanding in 2030 rose 22 basis points to 3.82%.
According to data consulting firm Unholster, the ruling coalition candidates won only 37 of the 155 seats in the assembly designed to write the new constitution. Candidates not affiliated with any political party won 65 seats. The result means that the ruling coalition is not reaching the third threshold they needed to block market-unfriendly clauses in the new charter.
“This weekend’s constitutional assembly elections remind us that left-wing and disliked market candidates can do very well in the post-pandemic era,” said Guido Chamorro, Pictet Asset’s portfolio manager Management Ltd. to London.
The results reflect the growing rejection of traditional parties, which adds to the uncertainty as one of the richest nations in Latin America rewrites its laws after the worst social unrest of a generation. At stake are the rules that helped drive more than three decades of growth, while fueling social discontent and inequality.
Key points in the debate during the rewrite are expected to include natural resources, pensions and social services. More immediately, the results could add impetus to a bill on copper bills planned for the Senate in the coming weeks that would create one of the heaviest tax burdens in global mining.
“Election results are a downward bias in growth this year,” said Sergio Lehmann, chief economist at Santiago’s Credit and Investment Bank. “There is greater uncertainty about the economic impact in 2022 and 2023. A highly polarized constitutional process can hurt investment.”
Approximately 6.4 million people participated in the election, representing a turnout of 43%, according to data from Servel’s polling station. The figure was below the government’s forecast of 7 million votes.
Left-wing and little-known candidates also drew a number of surprises in the local elections. The Conservative mayor of downtown Santiago lost re-election to a Communist Party candidate, while Karina Oliva, of the far-left Frente Amplio alliance, advanced to the second ballot of the governor of the Santiago Metropolitan Region .
Candidates for the Assembly of the left-wing group Lista Del Pueblo, or The People’s List, were big winners in the weekend’s vote, according to Cristobal Huneeus, director of data science at Unholster in Santiago.
“Among the most important issues they respond to are human rights, civil society, the environment and the idea that the current economy does not work for the benefit of the people,” he said.
In the future, election results will increase possible presidential candidacies of left-wing candidates, including MP Gabriel Boric and Daniel Jadue, who is mayor of the Recoleta district of Santiago, Huneeus said. Chileans will vote for the next head of state in November.
Last year, citizens overwhelmingly decided to undo the current constitution implemented during the dictatorship of Augusto Pinochet. It was a key demand from protesters who took to the streets from October 2019 initially for a subway fare hike before expanding demands to include better utilities.
Elections were initially scheduled for April, but lawmakers voted to postpone them until May, as daily Covid-19 infections and hospitalizations reached all-time highs. The Constitutional Assembly will now have up to a year to draft the new letter.
Chile may face significant political and economic uncertainties following the downgrade in October 2020, according to an email from Fitch Ratings, which described the country’s current rating of A- as “very solid.”
Government-backed candidates were not the only ones to receive success. Moderate and center-left parties such as the Socialists and Christian Democrats got only 14% of the vote in the Assembly.
“The clearest signs so far are that the right is weaker than expected and that the center is gone,” said Jennifer Pribble, an associate professor of political science at the University of Richmond.