Electoral polls were wrong yet again. In Chile, the polls suggesting that Sebastián Piñera would win the presidency were so convincing that most believed that Chile’s elections would be a no-contest.
Sunday’s results show that this is no longer the case. Sebastián Piñera (Chile Vamos) won 36.6% of the votes compared to polls that projected him to garner 43%. He will face Alejandro Guillier (Nueva Mayoria) who won 22.8% of the vote, a number that polls anticipated.
However, multinationals should not overreact to Piñera’s underwhelming electoral performance. Here are three things to keep in mind while interpreting the first-round results:
- Sebastián Piñera has already received unconditional support from far-right candidate José Antonio Kast. Hours after the election, José Antonio Kast pledged his support for Piñera and urged his voters to do the same. With Kast’s 8% vote in the first round, this would mean that Piñera could safely win 44.5% of the vote in the second-round
- Anti-Piñera vote alone will not mobilize Frente Amplio voters. The biggest unknown of the second-round will be what the voters of the leftist coalition Frente Amplio decide. Beatriz Sánchez surpassed expectations and won 20% of the vote in the first-round. However, there is no guarantee that Frente Amplio nor its voters will give Alejandro Guillier their vote. This is because many of Frente Amplio’s members are disillusioned voters who also view Nueva Mayoría as part of the inept political elite. One of the founders of Frente Amplio, Giorgio Jackson, argued that Guillier will have a hard time exciting voters of Frente Amplio under his current proposals. Even with Frente Amplio’s potential endorsement of Guillier (they will make a decision on November 30), many of its voters may still decide to abstain.
- Guillier has a more difficult balancing act to court voters. In sum, Guillier will need to attract a significant amount of Frente Amplio votes in order to defeat Sebastián Piñera in the second round. This will likely require more radical concessions to Frente Amplio from Guillier (such as promising the abolition of the current pension system). Guillier would have to strike the right balance doing this; on one hand, winning over Frente Amplio would be Guillier’s biggest asset to victory. On the other hand, moving further to the left could push undecided centrist voters to Piñera’s camp.
Even if Alejandro Guillier were to win, MNCs should keep two important things in mind:
- His proposals are moderate. Whatever the outcome of the second-round (December 17), MNCs should not view Guillier’s proposals as radical. If anything, his presidency would represent continuity of Bachelet’s reforms and the free-market model. Both Guillier and Piñera have highlighted the need to diversify the economy from copper and to ignite infrastructure investment. In addition, Guillier has not pledged the implementation of new, unfriendly policies (such as increasing the corporate tax rate further or granting workers more rights that are guaranteed by Michelle Bachelet’s labor reform).
- Economy is officially rebounding. Lastly, it is important to know that Chile’s economy is rebounding regardless of the country’s political outcome, as FSG previously argued. The Central Bank of Chile released third-quarter GDP numbers on November 20 which showed real growth of 1.5%. This is the best statistic of 2017 and suggests that the economy is on an upward trajectory. The important indicators to monitor will be copper prices and business confidence. Downward shocks on either of these would play a bigger role in Chile’s market outlook than December’s election results.
Actions to take
Multinationals should contemplate taking these actions as a result of recent events in Chile:
- Prioritize monitoring key economic indicators (confidence indices, retail sales, copper prices) as a barometer for Chile’s market outlook for 2018 instead of the election results. This is because Alejandro Guillier will not deviate Chile’s policies strongly from the status quo.
- Consider FX hedging in the event of a peso depreciation. Although buoyant copper prices will keep the peso’s strength stable in the medium term, a Guillier victory could result in another peso sell-off after the election. Preparing for this scenario could protect some of Q4’s top-line USD revenue.
FSG will keep clients informed of all happenings related to the election in the coming weeks. Pay attention to analyst commentary up until December 17, which will have the most up-to-date information on coalition building, candidate proposals, and polling analysis. For our latest updates and insights, you can visit the client portal or contact your Client Services Director for more in-depth briefings.
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