Chile peso jumps as hard-right candidate Kast tops first election

LONDON (Reuters) – Chile’s peso surged on Monday after hard-right former congressman Jose Antonio Kast topped the first-round election, with the focus now shifting to composition of congress.

Chile is heading for a runoff with Kast competing with leftist lawmaker and former protest leader Gabriel Boric on Dec. 19. A strong performance by moderate centre right candidates bodes well for Kast.

Chile’s peso jumped 3.7% against the dollar to trade at 797.90 – its best day in almost a year.

“Initial results are very bullish for Chilean assets as the market will have to remove the risk premia priced in last week,” said Alvin Tan at RBC.

“We have to wait and see if the right-wing coalition is able to increase or at least maintain the current representation in order to adjust our medium/long term negative views in CLP.”

The election has split voters between those seeking a shake-up its free-market model and those demanding a harder line against crime and immigration, after two years of sometimes violent protests demanding improvements to living standards.

Chileans also voted to fill 155 lower house seats and 27 of the 50 upper house seats. Hard-right and conservative lawmakers looked set to finish with 23 seats in the Senate, while center-left and hard-left lawmakers were on course for 22 seats, with the rest going to independents.

“Against the backdrop of the Constitution Convention, the power distribution in the Congress matters more than in prior cycles,” said Diego Pereira at JPMorgan (NYSE:).

Despite Monday’s gains, Chile’s peso has weakened more than 11% since the start of the year, making it one of the region’s worst performing currencies in 2021.

Chile hard currency bonds are the worst performer in Latin America returning -16.5% compared to a -8% return in JPMorgan’s regional sub-index.

Luc D’hooge, head of emerging markets bonds at Vontobel Asset Management, said a divided Congress would likely limit any radical legislative changes.

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