Our scenario considers a target IPSA of 4,700 points. We base our projections on a relatively conservative scenario in terms of valuations, understanding that the local scenario will continue to be challenging given the ongoing constitutional process and the presidential election in November, but that given the magnitude and timing of monetary and fiscal stimulus, already fairly discounted valuations, and a favorable international scenario (including the recovery of key commodity prices), this would offset some of the domestic political risks associated with the elections.

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

1. While we recognize that some factors of uncertainty will remain, after the results of last weekend's presidential primaries, where the most extreme rhetoric was defeated and ideas of defending institutions tended to prevail, we believe that there is now some room to focus more on economic recovery, the reopening of trade, 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 heavy punishment incorporated into valuations, because the political punishment will decrease marginally and it will be possible 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. These are important indicators that could generate greater capital gains on the local stock market.
3. In terms of health, with more than two-thirds of the population fully vaccinated and the progress of the Step-by-Step plan, 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.

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 the expected weakness of the dollar and 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.

If you would like to see more details about this note, click here: Local Equities