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Title : The Chile election shock (from IKN445 last weekend)
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The Chile election shock (from IKN445 last weekend)

Round two come a week before Christmas and, contrary to most expectations, Sebastian Piñera has a fight on his hands. This from IKN445 last weekend

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Chile: A shock result in round one

Last weekend’s result in round one of the Chile Presidential election blindsided me, but at least this time I have plenty of company because it came as a shock to just about every seasoned political watcher in Latin America. It might not have looked like it at first glance, with the top three names in the order they were supposed to come, but last Sunday’s Presidential round one election was a big shock that has seen Chile take a surprise jump to the left.

At the start of the month we had headlines like (8), “Top Chile Pollster Predicts First Round Win for Former President Piñera”, which came with quotes such as, “Everything is moving in that direction, and if he does not win in the first round he will get at least 45 percent of the vote, so it doesn’t make much difference”. As late as last week at the Colombia Gold Symposium, I was asking both Chilean residents and political-watcher experts who were of one voice, “Piñera shoo-in. Therefore the final result…

• Sebastian Piñera 36.63%
• Alejandro Guillier 22.70%
• Beatriz Sanchez 20.27%

…was a big shock. However, it wasn’t just a numerical surprise with no consequence, it opens the door to a full-scale fight in the round two run off on December 17th. Headlines now read like this (9) (10) (11):

• Piñera aims for center in tight battle for Chile's top job

• Chile faces new political landscape as leftwingers dent billionaire Piñera's hopes

• Piñera faces battle to win Chile presidency

• 1st-round leader Sebastian Piñera no sure thing for Chilean runoff election

And that’s just the international coverage in English, the mainly right-wing controlled press in Chile is having its own version of a nervous breakdown, four squillion words spilled to date.

The biggest surprise to the upside was the 20.27% harvested by Beatriz Sanchez of the left wing “Frente Amplio” (Broad Front), an alliance of several left wing and hard left wing groups such as the Humanist Party, the Liberal Party, Democratic Revolution, the Green Ecologist Party, the Equality Party among others. Her showing was Chile’s version of the type of “anti politics” protest vote from grassroots that has seen many surprise results in the last couple of years all over the world.

Sanchez got closer to the eventual second placed candidate that everyone expected (and must have caused a few nerves in the Alejandro Guillier camp on election night, less than 2.5% separated them in the end). Guillier now goes into the second round run off against Piñera and though strictly speaking is running as an independent, his “Nueva Mayoria” (new majority) party is the obvious follow-on from the current Michelle Bachelet government and if he goes on to win it would be seen as continuation of current policies.

Piñera’s weaker than expected showing was due the to Beatriz Sanchez surge, but also due to the 7.93% garnered by José Antonio Kast, a seasoned hard-right wing politician and open supporter of General Pinochet (and his legacy), who was expected to get around 2% of the vote but ended up with 7.93%.

As for market reaction to the result, here’s the ten day chart of ECH, the US traded ETF that tracks the Chile stock exchange:

Picture speaks a thousand words. Meanwhile, though the Chilean Peso hasn’t put in the rally I called for earlier on the year and gone under 600 to the US Dollar yet, it was a long way from panicking and this weekend’s 634 forex shows the underlying currency isn’t anywhere near as spooked as the more flighty verdict of Chilean exposed equities

Summing up, what we need to know today is that Chile has taken a lurch to the left. The combo of a strong showing by real left wing Sanchez and the chances of centre-left-same-as-current-government Guillier in round two mean that the left wing now has Kingmaker powers. Indeed Sebastian Piñera has admitted this and has stated out loud he will “court the centre” in order to get past the winning post in December. That might mean the alteration or plain dropping of some of his more strident righty election proposals, such as promised tax cuts for businesses or plans to make big cuts in public sector jobs.

Meanwhile, Guillier’s job is to gain the support of as many of the 20% who voted for Sanchez as possible. That process starts by getting her official support of course and that means making concessions to the left (Sanchez’s group campaigned against quasi-government candidate Guillier by stating that the Bachelet social reforms were too little and too slow). If we add in the other minor left candidates likely to opt for Guillier in round two, he has at least 45% and that’s enough to make a serious challenge. This one is now in the balance.

As for mining, for sure it would prefer a right wing win next month but let’s not start wailing about he entry of Communism into Chile or other such silliness, a Chile mining industry under an eventual Guillier government would be in practical terms little different to the Chile we’ve seen during these Bachelet 2 years. In other aspects yes, Chile would bring in more left-wing policies (schooling, public health etc) but for mining, it will keep on keeping on whoever gets’ the nod. To give that context, I suppose I’d reduce the overall Chile score in our Regional Risk Review come end December by one point, two max, if Guillier wins. Hey, it might drop by a point due to a Piñera win now too, what with the close vote coming up.

Bottom line: There are better things for you the mining investor/speculator to worry about than the result of this upcoming election. Once the shouting dies down, mining in the country will continue as per.

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