Macroeconomic context: low growth but returning to normal

The local macroeconomic scenario is moderately optimistic, although it should be noted that the growth problems are structural and long-standing. The stagnation of the Chilean economy is not a recent phenomenon, but rather the result of a sustained decline in the potential growth rate over the last 10–15 years.

The recovery of growth capacity will be gradual and will depend on medium- and long-term reforms and decisions, rather than short-term cyclical impulses. In this context:

• It is unrealistic to think of sustainable growth of 3% without generating inflationary pressures, given the current capacity of the economy, but if we see it as a possible scenario
• Towards the beginning of 2026, the baseline scenario points to macroeconomic normalization:
  growth close to 2.5%, inflation at 3%, and the MPR around 4.25%.

Domestic demand and investment: cyclical support with clear limits

Unlike last year, recent growth has been sustained mainly by domestic demand, albeit in a heterogeneous manner:

• Consumption of services (health, tourism, transportation), driven by higher-income quintiles that are still normalizing pre-COVID patterns.
• Consumption of durable goods, boosted by purchases made by Argentinians and relatively favorable financial conditions.
• Consumption of non-durable goods remains weak, reflecting income constraints in large segments of the population.

In investment:

• Investment in machinery and equipment stands out, concentrated in mining and energy.
• Investment is not so much influenced by political or electoral cycles as by clear rules, regulations, and tax policy.
• Mining has been a "stumbling block" in real terms: its contribution to growth came mainly from the price of copper, not from increased physical production.

Labor market and productivity: ongoing structural adjustment

The labor market is a central focus of the analysis, given that the income of most households depends directly on employment. Profound structural changes can be observed here:

• The unemployment rate remains high.
• The decline in informality does not necessarily reflect an improvement, but rather the disappearance of formal jobs.
• The jobs created in the informal sector are mainly self-employed women, often working in informal conditions.
• Productivity has increased through automation and technology adoption, allowing the same amount to be produced with fewer workers.

By sector:

• Agriculture is the sector that has lost the most jobs since the pandemic, despite its GDP growing faster than average. These jobs will not return.
• Large companies will increase production by utilizing existing capacity, not by hiring.
• Small businesses, on the other hand, need to hire in order to grow.
• Construction faces a cyclical, not structural, problem. If investment rebounds, it could once again become a key driver of employment (8–12% of total employment in expansionary phases).

Inflation and MPR: latest cut and pause

Inflation surprised on the downside, and the baseline scenario is for faster convergence to the 3% target, even with the risk of temporary undershooting.

Central monetary policy scenario:

• Following the latest cut in the TPM, the rate closes 2025 at 4.5%.
• We believe another cut is likely in January, bringing the rate down to 4.25%.
• After that, we see no grounds for movements in either direction.

This scenario favors:

• The short and medium end of the curve, where the risk of sharp rate rises is lower.
• More defensive strategies in the long term, given the link to external rates.

Exchange rate: variable lag, but with a downward bias

The exchange rate is the only relevant macro variable that remains misaligned with fundamentals:

• It has not reacted to improved economic data, the strength of local assets, or the weakness of the global dollar.
• The consensus is that the Chilean peso should be more appreciated.

Scenarios:

• If the shocks are perceived as permanent, the TC would remain close to 900.
• If risk perception improves and the peso returns to fundamentals, the TC would converge to 840–850.
• In all scenarios, the exchange rate is biased downward.

Fixed income market: full normalization of the cycle

There is broad consensus that local IG credit is already priced in:

• Bank and corporate spreads at levels close to historic lows (2019).
• Solid company results justify these levels.
• High local liquidity and balanced primary offering.

UF as a structural axis

UF remains the natural core of local fixed income, especially in the 2–5 year segment:

• Real rates still have some room versus history.
• Lower correlation with the US long-term rate.

Local taxes and the United States: "kidnapping" by the American tax system

Chile has entered a phase of financial normalization:

• Local rates are once again correlating with Treasuries after years of idiosyncratic noise (withdrawals, politics, imbalances).
• The country risk premium has fallen, which:
  • Justify low spreads in IG banking.
  • Increases sensitivity to external shocks.

Local Equities (RVL): gradual recovery with structural support

Local equities have performed well in relative terms, reinforcing the narrative of financial normalization and reduced uncertainty:

• The IPSA had a solid year, supported by:
  • Improved local macroeconomic outlook.
  • Appreciation of the Chilean peso.
  • Less political uncertainty at the regional level.
• Measured in dollars, the IPSA outperformed both the region and other emerging markets, reinforcing its relative attractiveness.

In terms of liquidity:

• Trading volumes remain high, above USD 200 million per day.
• There is strong participation from local investors, particularly pension fund administrators (AFPs) and mutual funds.
• There is a noticeable return of foreign investor flows.

Valuations and re-rating potential

From a multiples perspective, the Chilean stock market continues to show attractive valuations:

• The IPSA trades at around 13x earnings, which implies:
  • A discount of around 3% compared to its historical average.
  • An approximate discount of 8% compared to emerging markets.
• Under a pro-market scenario, convergence toward pre-social unrest multiples, around 14x, is considered feasible.
• Expected EPS growth of close to 10% would result in a potential IPSA level of over 11,000 points in a constructive scenario, and why not think about reaching 12,000?

Yield gap and regional positioning

The relative yield gap continues to be a relevant argument in favor of Chile:

• Compared to Mexico and Brazil, whose indices are trading below their historical averages,
• Chile is at levels more in line with its history, but with:
  • Greater macro stability.
  • Less relative political volatility.

This positions the Chilean stock market as a natural destination for regional flows, especially in scenarios of rotation toward markets with a better risk-return balance.

Investor flows and positioning

• Recent flows have been clearly positive, led by local investors (AFPs + mutual funds).
• Foreign investors begin to normalize positions after several months of lagging behind and underexposure.
• This shift in trends is key to sustaining a gradual re-rating process, rather than an abrupt rally.
• Changes in MSCI ACWI or emerging market weightings will attract new flows to Chile.
• Structural copper deficit implies higher prices.