Over the past few days, the oil market has experienced one of the biggest supply shocks in recent years following the military escalation in the Middle East, with Brent and WTI nearing highs of $120, driven by the growing threat of disruptions in the Strait of Hormuz, one of the world’s most critical energy routes. 

As a result of this conflict, maritime traffic through the Strait of Hormuz is expected to be very limited during the month of March. This strait represents a vital bottleneck for global oil and gas trade, as approximately 20% of the world’s oil supply passes through its waters. 

In this context, the market is beginning to factor in not only the risk of temporary disruptions but also the possibility of actual supply shortages, driving up the risk premium in oil prices. Should a scenario of restricted production in the Gulf materialize, the impact could extend beyond the short term, reinforcing global inflationary pressures and complicating the process of monetary normalization in major economies. While this is not our base case, it is a risk that is beginning to gain greater prominence in the market. 

That said, financial markets tend to hit bottom when sentiment is at its most negative. Given this, we wouldn’t be surprised if this were to materialize in the coming days (markets are still pricing in an energy supply shock that’s only a couple of weeks old). History shows that markets generally tend to bottom out between 5 and 10 business days after the peak in risk (we assume for now that this occurred when oil prices reached $120 per barrel earlier this week), followed by strong recoveries. 

At the local level, the impact has been felt in several ways. A sharp rise in the exchange rate, which, combined with rising oil prices, has raised inflation expectations for at least the next two months. In addition, deteriorating terms of trade and worsening financial conditions have led to adjustments in the equity market. 

In fact, despite the lower-than-expected February inflation figure, the short-term outlook has undergone a significant shift. An adverse external environment, characterized by rising energy prices and exchange rates, has pushed inflation expectations for the next two months up by more than 37 basis points. Inflation forwards are around 3.2% for 2026, which is quite positive for a UF-denominated position, considering that so far, the two inflation figures released this year add up to a 0.4% increase. In addition to this, we must consider the attractive real rates currently available in the market at the short-to-medium end of the curve. 

This recent energy shock in supply chains is negatively impacting the local nominal curve in two ways: first, through spillover effects from U.S. benchmark rates, and second, through direct pressure on local inflation, affecting the transportation sector via rising gasoline prices and higher import costs due to a more depreciated exchange rate. Consequently, the room for the Central Bank of Chile (BCCh) to continue its monetary easing in March has dissipated. We believe the BCCh will wait for further developments in the conflict before cutting the TPM again, given the sensitivity of the local basket to external factors. In any case, the policy rate currently stands at 4.5%, and the neutral rate is expected to be 4.25%; therefore, only a 25-basis-point cut would be needed to complete the easing cycle. 

In terms of returns, the real yield curve has outperformed the nominal yield curve so far this year. A UF-indexed strategy focused on the short-to-medium end of the curve and featuring high-quality credit (primarily bank bonds) has yielded around +2.0% year-to-date, while a nominal strategy has yielded just 1%. Looking ahead, we remain highly convinced of UF-indexed strategies given that inflation is projected to settle somewhat above 3% by 2026. Although base rates in UF have fallen by 15–20 basis points over the past month, current levels remain around historical averages. 

In the equity market, the IPSA’s positive earnings season has been overshadowed by the geopolitical conflict in the Middle East in recent weeks, but we believe that beyond the short-term impact associated with a deterioration in terms of trade, and assuming a gradual de-escalation of the conflict, the recent corrections have created attractive entry points for local equities for the remainder of the year. 

Currently, local stocks are trading at forward P/E ratios (12-month forward price-to-earnings) of around 13 times, which, while fairly close to the average over the last 10 years, seems attractive to us, considering that over the past decade we have experienced social unrest and a pandemic that clearly weighed on the index’s valuations. Therefore, we believe it is reasonable to target the historical averages prior to these two events (closer to 16x), given that inflation is converging toward the target (despite recent increases) and the new government’s investment-focused reforms, which should translate into improved growth expectations and positive corporate results (currently, the market is pricing in earnings growth of +15% for 2026). 

Although there have been outflows from both local and foreign retail investors in recent weeks, year-to-date, cumulative inflows remain well above those seen at the start of previous years. In addition, institutional investors have continued to buy shares throughout February, reflecting a positive outlook on the asset. Looking ahead, we believe that foreign inflows should continue their upward trend as the dollar resumes its downward trend. 

DISCLAIMER.

Tomás Fernández 
Portfolio Management Analyst