Macroeconomic, Monetary, and Market Scenario

1. Macroeconomic context: low growth but returning to normal

• 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%.

2. Domestic demand and investment: cyclical support with clear limits

• 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.

• 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.

3. Labor market and productivity: ongoing structural adjustment

• The unemployment rate remains high.
• Lower informality does not necessarily reflect an improvement, but rather the disappearance of informal 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.

• 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).

4. Inflation and MPR: latest cut and pause

• A final cut in the TPM in December, bringing it to 4.50–4.75%.
• Then, a long pause, waiting for new data.
• There appears to be no room for an additional aggressive round of cuts.

• 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.

5. Exchange rate: variable lag, but with a downward bias

• 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.

• 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.

6. Fixed income market: complete normalization of the cycle

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

• The potential for further compression is very limited.
• The expected return comes mainly from carry, not price.
• Asymmetric profile:
  • If everything continues to go well → the carry is earned (e.g., UF + 2.6–2.7%).
  • If there is macro or credit noise → spreads widen and price adjustment is rapid, with little cushion.

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

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

• 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.

• The Chilean rate is currently "held hostage" by the US rate.
• Changes in the FED or the UST curve are transmitted more directly to the local curve.

8. Local Equities (RVL): gradual recovery with structural support

• The IPSA had a solid month, 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 has been an incipient return of foreign flows, mainly via ETF ECH, which recorded nearly USD 100 million during the election week, which could mark a turning point after months of decline.

Valuations and re-rating potential

• The IPSA trades at around 13.0x 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.

• Moderate re-rating of multiples, and
• Expected EPS growth close to 10%,

• 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.

• 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