This week, CFA Society Chile, an organization that brings together professionals in the investment industry, hosted the Midyear Outlook webinar to analyze the outlook for the economy and investments in the first half of the year and the coming months. The webinar featured Nathan Pincheira, chief economist at Fynsa, and Humberto Mora, deputy investment manager at Fynsa Corredora de Bolsa. 

In the first part of the seminar, Nathan provided an assessment of the current state of the Chilean economy and its outlook. What points did he highlight? First, the ongoing economic slowdown, marked by volatility in the mining sector and a slowdown in the retail sector, particularly in durable goods. This is occurring against a backdrop of low liquidity—which, following its significant expansion during the pandemic, is now at levels lower than those observed before the social unrest—a service sector showing flatter growth, sustained mainly by demand from the highest socioeconomic quintile, and a weak employment situation. The outlook for economic activity is flat, Nathan noted, with GDP growth for 2023 at the lower end of projections, while growth of 1.8% can be expected for 2024—below the Chilean economy’s potential growth rate.

The good news? Lower inflation persistence. Inflation should continue to decline, converging toward the 3% target by the end of 2024. Along the same lines, expectations suggest that the monetary policy rate will begin to fall. How quickly? That is the big question on the market’s mind, but all signs indicate that the decline will be—at least initially—not very aggressive, approaching a neutral level only by the end of 2024.

In the second part of the webinar, Humberto reviewed the outlook from an investment perspective. What are the key points, in his view? On the one hand, the effective way in which the challenges facing the markets—such as the banking crisis a few months ago—have been contained. On the other hand, the strong returns posted by traditional sectors, such as consumer discretionary and telecommunications, as well as the technology sector, driven by the boom in artificial intelligence. Humberto highlighted the strong performance of European stocks, the corporate reforms underway in Japan—which could make that market more attractive—and China’s disappointing performance, as well as the strong performance of fixed income due to rising interest rates.

Looking ahead, there are two important factors. The first is that the risks of a recession have been diminishing, thanks to a resilient economy. While a recession cannot be ruled out, it does not appear likely in the short term. Inflation has been easing; it has been lower than expected; and, crucially, market expectations are anchored—investors trust the central banks. The labor market, meanwhile, has been rebalancing. What about the risk indicators? The inverted yield curve—which has historically been a predictor of recession—and high levels of credit tightening, but the data are not conclusive, he noted. 

In any case, the Fed is not expected to cut interest rates before 2024. Looking ahead, however, as part of a fixed-income strategy, we should start considering adding corporate risk to our portfolio.

In the equity market, we are seeing interesting corporate resilience, with companies generally successfully weathering cost pressures and posting better-than-expected results. Humberto believes the equity market rally can be sustained, but with more moderate total returns. In any case, he recommends a more balanced global exposure and active portfolio management.

Other key factors: The dollar, which will weaken moderately for the rest of the year, and the Chilean asset market, where visibility has improved and political and regulatory risks have been receding. In the equity market, Humberto noted, valuations are attractive, and it seems more likely that the IPSA will reach its target of 6,500 points.

We invite you to watch the video again here.