First, let's define which metric is most appropriate for measuring the long-term value of a market. FYNSA has always argued that the price-to-book (P/B) ratio is a reliable metric for analyzing long-term prospects, especially in scenarios of greater uncertainty such as the one we are currently experiencing in the local market. The P/B ratio could be defined as the installed capacity that will allow the average of future profits to be collected. If we look only at the returns for local companies, the scenario looks quite favorable. An acceleration in global growth, commodities at peak price levels (in nominal terms), favorable terms of trade, and unprecedented monetary and fiscal stimulus explain a scenario of profit expansion not seen in the last ten years.

In a bottom-up analysis, analyzing the expected ROE (return on equity) of the companies that make up the IPSA, weighted by their weight in the index, we see that it stands at between 12-13%. Our analysis considers the lower end of this range of returns and additionally projects lower growth than theoretically implied considering the variables described above.

If it is not obvious to compare the effect on profits between a favorable global economic scenario and a potentially more hostile political environment for companies, how do we reflect the greater uncertainty implicit in Chilean asset prices?

Our answer to this question is based on the discount rate or "cost of equity" that the market uses to value the IPSA. Chile currently has an A risk rating. We assume, in the first instance, a further deterioration in the credit profile in the medium term, but without losing investment grade status, which, in practice, would bring us closer to Colombia's risk rating, which is currently BBB-. Based on the above, we add to our estimate the higher cost of borrowing that this deterioration in Chile's credit quality would imply today, based on the levels that the CDS and international sovereign bond markets would require from Chile considering these assumptions. We incorporate the higher cost of borrowing, which is assumed in our stress scenario for the local stock market, into our economics team's estimate of long-term equilibrium rates and additionally add the rise in the 10-year Treasury bond rate based on the projections of the major global investment banks.

Incorporating all these variables, we arrive at an IPSA level of 4,530 points, which is also consistent with a P/B ratio that is practically one standard deviation below the average for the last ten years.

This stress scenario we have modeled incorporates a potential increase of around 10% from the current IPSA level. Another additional and complementary question would be, how has the market responded to situations similar to the one Chile is experiencing? The answer to this question could come from the Peruvian market. The political and social situation in Peru is not exactly the same as ours, but it does have many similarities. Today, Chile trades at a 5% discount in terms of P/B (MSCI) compared to Peru, when historically it has traded at a 20% premium.