The constitutional penalty

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[et_pb_column type=»4_4″][et_pb_text admin_label=»Text«]It has been a complicated second half for local risk assets. After the first 7 months where returns exceeded 20%, today the IPSA is below 7% in CLP and 0% in USD. Thus, we've clearly fallen behind the world and emerging markets, which have returned +12% and +2% in USD, respectively.

This has unfortunately been the trend over the past 3 years. Can we speak of a Constitutional Penalty?

The local stock market traded at a premium of 1.2x – 1.6x forward price/earnings (a measure of investors' willingness to pay for each “unit of earnings”) vs. the rest of emerging markets until 2019, but from 2020 onward it has not exceeded 1x, standing today at 0.7x, that is, a 30% penalty vs. comparables.

Undoubtedly, valuations reflect multiple factors and we can't attribute the current penalty solely to the constitutional processes. That said, greater uncertainty drives investors away.

Looking at the glass half full, expected returns have also risen today due to the higher discount rate demanded of our country.

It is to be hoped that, once the current process is closed, we can return to something more like our recent history.

This column was originally published on November 16, 2023 in La Segunda [LINK][/et_pb_text][/et_pb_column]

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