Fynsa
Since our last local asset update things have continued to evolve favorably, with the IPSA returning 15% so far this year.
To the reduction of political-institutional risks and highly discounted valuations, we can now add the expectation of aggressive monetary easing going forward, we can now add the expectation of aggressive monetary easing going forward.
The latest economic data, with downward surprises both in activity and especially in inflation, clear the way for the Central Bank to make its first rate cut of 75 basis points at the end of this month and end the year with a TPM of 8% (-300 bps), an adjustment process that would continue in 2024 to a range of 4.25% - 4.5%.
These lower interest rate forecasts not only mean higher potential for multiple expansion, but also lower pressures on access and financing costs, as well as making the attractive dividend yield of local equities (around 8%) more "competitive".
With respect to valuationsAlthough they have been adjusted, they are still highly discounted in historical terms under any metric, both in absolute terms and with respect to international comparables, they continue to be highly discounted in historical terms under any metric, both in absolute terms and with respect to international comparables.
The IPSA trades at 9x P/U fwd 12m, still well off its long-term averages. Relative to the region, Chile offers a 6% discount to its averages and a 25% discount to emerging markets in general.
Also, interest rate adjusted valuation is the most attractive in the region, with equities offering a premium of 600 basis points.
Going forward, we see room for a greater revaluation of local actions.. Investment flows from both institutional, foreign and retail investors have been increasing, positioning remains light, and both the macro and corporate earnings environment should improve heading into 2024.
For the time being we maintain a 2023 target price of 6,500 for the IPSA (+8% from current levels), which implies a still conservative valuation around 10x P/U fwd. In our bullish scenario, which assumes a more favorable external scenario trend, (mainly via higher copper prices), and a faster than expected monetary easing, we believe the IPSA could approach the 6,800 - 7,000 range.
Finally, with respect to our major convictions, it is important to highlight the improvement in the breadth of the local market, with more sectors participating in the recovery. Thus, we continue to overweight the commodities sector (SQM-B), but we also see opportunities in sectors more linked to the domestic cycle and more sensitive to interest rates, retail (CENSOSUD) real estate (MALL PLAZA) and utilities (ENEL CHILE), as well as basic consumption (ANDINA-B), and banks (CHILE).
