Chile : Boric Presidente…now what?

Gabriel Boric’s (left) decisive victory over Jose A. Kast (right) sent a clear signal from Chileans about wanting to adopt a new economic model. This is a model that is closer to what Scandinavian countries have implemented with a strong and wide social safety net. Boric’s economic policies of big state/high taxes will likely have a negative impact on investment. Therefore, these policies will lower potential GDP growth, which has already been decreasing . Chile is the world’s largest producer of copper and the second largest producer of lithium (around 32% of world production). In the immediate aftermath of the election of Boric, the MSCI Chile stock index dropped by 10.5% and mining companies such as SQM retreated by 14% . O ur view is that Boric’s politics and tendencies are closer to that of Northern European socialist parties rather than that of the radical left such as Chavez or Castro. As such we do not expected to see dramatic changes and forced nationalizations in the mining sector. Moreover the fact that Boric doesn’t have control of the senate will limit his ability to maneuver. Our view is that even if royalties and costs increase this will unlikely have an impact on the international copper price and production given the large margins that producers are enjoying. Although mining Royalties in Chile are almost twice as high as rest of South America, they are still well below the rest of world levels