The local market continues to be in a climate of great uncertainty, where although the primary results dispelled some negative risks, parliamentary initiatives (particularly a potential fourth withdrawal of funds from the AFPs) and progress within the constitutional convention will continue to play a leading role. 

However, expectations for a fourth withdrawal have been fading, and the chances of it being rejected in the Senate are increasing.

We believe Chilean equities offer a good risk-reward ratio ahead of the presidential elections (three months away).

Looking ahead to the rest 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 macroeconomic uncertainty has decreased marginally, it remains high, and the upcoming presidential elections in November and the ongoing Constitutional Convention process suggest that volatility in local markets could well persist. However, we believe that there is some room to focus more on economic recovery, commercial reopening, and improved corporate earnings. Thus, we could have a couple of slightly calmer months (prior to the presidential elections) that would allow the IPSA to reverse part of the sharp punishment incorporated into valuations, because the political punishment will decrease marginally and it will be able to move more on fundamentals.

2) The external scenario will remain favorable, with copper prices expected to remain high, greater global liquidity, and a highly expansionary and commodity-intensive fiscal policy, all of which are important indicators that could generate higher capital gains on the local stock market.

3) In terms of health, with more than two-thirds of the population fully vaccinated and the Step-by-Step plan moving forward, the economic reopening has been gaining momentum. So far, the country enjoys a privileged position in terms of vaccine availability thanks to the government's efforts, which has set an example for other countries in the region and even for several developed countries. This will logically help speed up the recovery of our economy.

4) All of this leads us to believe that, on the one hand, we could see a better-than-expected recovery in corporate earnings and, on the other hand, there could be room for some expansion in multiples.

5) Indeed, corporate results have far exceeded expectations in Q2 2021.

In terms of strategy, we favor stocks that we believe are undervalued (value), of high quality (solid financial position), and with growth potential. Sector-wise, we are favoring commodities, banks, retail, and real estate.

•   We expect favorable trends in the commodities sector to continue going forward, where 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 demand in the sector. This, combined with some supply shocks related to COVID-19, would support further price recoveries.

•   We believe that sectors such as retail, shopping, and banking would benefit most from fiscal stimulus through government bonds and ample consumer liquidity, coupled with economic reopening given progress in the vaccination process.

For further details, please refer to the attached report: Local Equity Strategy