Fynsa
Chile enters 2026 with an attractive risk-return ratio, supported by attractive real rates, valuations still at a discount, and a set of macroeconomic catalysts that are not yet fully reflected in prices. The transition to a more stable environment, with inflation converging and an exchange rate that could resume a more depreciated trajectory, strengthens the thesis that the rally in local assets could extend over the coming quarters.
Over the last few months, the Chilean market has shown particularly resilient performance compared to the rest of the region, both in fixed income and equities. Consistent flows, a more stable exchange rate, and more balanced economic expectations have allowed local assets to maintain traction in a challenging global environment.
At Fynsa, we maintain a constructive outlook. Chile continues to offer a good entry point through 2026, with historically attractive real rates, equity valuations below their long-term averages and discounts relative to emerging markets, as well as catalysts that could favor a gradual re-rating of local assets.
The focus toward 2026 shifts to the normalization of macroeconomic variables, which provides greater predictability for investors. In the case of inflation, although it continues to converge toward the target, the process will be more gradual than usual. The moderation in goods prices has been clear, supported by the appreciation of the peso and the inventory adjustment process in the retail sector, which has contained short-term pressures.
Even so, this dynamic coexists with persistent rigidity in services inflation. Labor costs remain the main determinant of this resistance, as the labor market continues to adjust slowly and wage pressures are slow to ease. The full convergence of core inflation will depend precisely on this adjustment progressing during 2026, so the scenario of stable inflation below 3% is not yet assured.
This nuance is key to portfolio construction. Inflation is converging, but not yet in a structural manner, which reinforces the importance of maintaining UF-indexed instruments as a natural hedge in local fixed income.
Monetary policy should also contribute to a more stable environment. With a projected monetary policy rate of around 4.25% for 2026, lower rate volatility and greater clarity regarding financing costs are anticipated. This scenario facilitates risk-taking and favors positioning in moderate-duration assets.
At the same time, the recent appreciation of the peso, driven by improved terms of trade and greater local stability, will continue to contribute to the disinflationary process. A stronger exchange rate reduces cost pressures, improves macroeconomic visibility, and favors the maintenance of positive real returns on peso-denominated portfolios.
In fixed income, the recent adjustment in nominal rates has significantly reduced the scope for capital gains in CLP. Current valuations make the nominal curve less attractive, especially in a context where inflation has not yet settled sustainably below 3%.
In contrast, the UF curve maintains a robust profile through 2026. Real rates between 1.75% and 2.37% remain competitive, and implied inflation compensation below 3% suggests that the UF continues to trade at a discount to nominal rates. This combination supports positive real returns and offers greater capital gain potential in scenarios of inflation convergence.
The short-to-medium duration strategy of between 2 and 5 years remains the central focus. Durations of 2 to 3 years provide an optimal balance between carry and risk for conservative investors, while 3 to 5-year tranches allow for greater slope and additional return in a more stable rate environment.
Also noteworthy is the recent widening of spreads on short-term UF banking instruments, particularly in the 1- to 3-year tranche, which opens up an attractive tactical window to position oneself ahead of the start of 2026, combining high credit quality with competitive real returns.
Chilean equities closed a good month in relative terms, supported by a more favorable political scenario following the elections and a more stable macroeconomic outlook. Trading volumes remain above historical averages, reflecting greater appetite for local risk.
In terms of valuations, the IPSA remains slightly discounted from its 10-year average and still trades at a discount of around 8% compared to emerging markets. In addition, yield gaps continue to favor Chile over Mexico and Brazil, which leaves the local market well positioned in the event of a strengthening of regional flows.
Flows have been consistently positive, with greater prominence given to local investors, pension fund administrators (AFPs), and mutual funds, as well as renewed international interest, evidenced by greater inflows into vehicles such as the ECH ETF.
By sector, banking, commodities, and real estate accounted for the highest post-election volumes, consistent with their strong operating momentum. In terms of corporate results, transportation, real estate, and commodities led EBITDA growth, while further earnings expansion is expected in commodities and utilities by 2026.
Looking ahead to next year, we anticipate a more selective market than in 2025. Valuations remain reasonable and flows continue to be supportive, but the dispersion of returns across sectors will be greater, making a focused, higher-quality allocation key.
At Fynsa, we see 2026 as a year of transition toward a more stable scenario, with fundamentals that are sufficiently solid to sustain a constructive positioning in local assets.
Fixed income:
UF predominance, duration between 2 and 5 years, and opportunities in short-term bank tranches with attractive spreads.
Equities:
Strategic exposure to the IPSA, with an emphasis on banking, consumer goods, and commodities. By 2026, returns will depend more on appropriate stock selection than on the movement of the index as a whole.
Key catalysts:
Inflation converging but not yet fully secured, lower rate volatility, more stable exchange rate, possible recovery of international flows, and a stock market that remains attractive in absolute and relative terms.
Tomas Haase
Strategy Analyst
