The local market continues to be in an environment of great uncertainty, where although the results of the primary dissipated some negative risks, parliamentary initiatives (in particular a potential fourth withdrawal of AFP funds) and the progress within the constituent convention will continue to be protagonists. 

However, in particular, the expectations for a fourth withdrawal have been receding, and the chances that it will be rejected in the Senate are increasing.

We believe that Chilean equities offer a good risk-reward trade-off ahead of the presidential elections (3 months away).

Looking ahead to the remainder of 2021 and incorporating the new information available, we continue to believe that there are reasons to be a little more optimistic (or if you prefer "less pessimistic").

1) Although the level of macro-political uncertainty has decreased at the margin, but remains high, and the upcoming presidential elections in November and the ongoing Constitutional Convention process suggest that volatility in local markets could well persist, we believe that there is some room to focus more on economic reactivation, trade reopening and improvement in company earnings. Thus, we could have a couple of months a little calmer (prior to the presidential elections) that would allow the IPSA to revert part of the strong punishment incorporated in the valuations, because the political punishment will diminish in the margin and it will be able to move more on fundamentals.

2) The external scenario will continue to be favorable, with copper prices continuing to rise, greater global liquidity and a highly expansive fiscal policy that is intensive in raw materials, are important indicators that could generate greater capital gains in the local stock market.

3) In terms of health, with more than 2/3 of the population fully vaccinated and the progress of the Step by Step plan, the economic reopening has been gaining strength. So far the country enjoys a privileged position in the availability of vaccines thanks to the government's efforts, which has been an example for the rest of the countries in the region and even for several developed countries. This will logically help the speed of recovery of our economy.

4) All this leads us to think that on the one hand we could have a better than expected recovery scenario for the companies' earnings and that on the other hand there would be room for some expansion of multiples.

5) Indeed, corporate results were well above expectations in 2Q21.

In terms of strategy, we favor stocks that we find undervalued (value), of quality (solid financial position), and growth potential. Sectorally, we are favoring commodities, banks, retail and real estate.

• The favorable trends in the commodity sector are expected to continue going forward, where the combined fiscal and monetary stimulus, which far exceeds the effort made for the financial crisis, coupled with greater stability in the Chinese economy, are tailwinds for the sector's demand, which added to some Covid-19 related supply shocks, would support further price recoveries.

• We believe that sectors such as retail - shopping - banks, would benefit the most from the fiscal impulse through government bonds and ample consumer liquidity, added to the economic reopening given the advances in the vaccination process.

For further details see the attached report: Local Equity Strategy