April 17, 2017 / 5:13 PM / a year ago

Chile stock market soars on expectations of political change

SANTIAGO, April 17 (Reuters) - Chile’s stock market had its best quarter of growth since the 1990s in the first three months of 2017, with traders and analysts citing expectations of a return to a conservative, business-friendly government as the key factor.

The IPSA has risen around 17 percent year to date. Although the curve has flattened a little in April, the first-quarter performance was its best since 1999.

Emerging markets equities in general had a strong quarter, boosted by hopes about Chinese economic stabilization and possible future U.S. infrastructure spending.

But Chile also benefited from significant tail winds related to expectations of political change, analysts and traders said.

“The trigger (for the rise) is an improvement in long-term expectations, as a result of eventual political change likely after November’s elections,” said Matias Repetto, manager of trading firm BTG Pactual Chile.

Billionaire businessman Sebastian Pinera, a former conservative president, is the frontrunner in polls to win November’s presidential election, with the incumbent center-left government deeply divided.

A fall in the price of copper has coincided with the administration of President Michelle Bachelet, dragging on investment and growth in the world’s No.1 copper exporter.

Opposition leaders have criticized Bachelet’s tax and labor reforms for exacerbating the situation, and Pinera has pledged to modify her reforms and do more to spur flagging investment.

“Expectations of a change of the policy cycle in Chile toward the center could revive investment and diminish regulatory risk in some sectors,” analysts at BICE said.

Chile’s powerful local pension funds - known as AFPs - increased their exposure to domestic stocks to 8.7 percent of overall investment in March, the highest level since September 2014, according to the pensions regulator.

Mutual funds are also showing signs of returning to the local equities market, reversing a recent trend toward fixed income and external investment. In March they were net buyers of some $130 million worth of local shares, the highest amount in six years, industry figures showed.

A recovery in copper in 2017 and low interest rates that make fixed income investment less attractive have also contributed to the stock market boom.

Cost-cutting programs and increasing geographical diversification among Chile’s larger listed companies have also made their shares more appealing, especially as Brazil’s and Argentina’s economies recover, analysts said.

The stocks most named by analysts as expected to benefit in the medium-term include energy group Enel Americas, retailers Cencosud and Falabella, IT firm Sonda and bottler Embotelladora Andina.

Reporting by Felipe Iturrieta, Writing by Rosalba O'Brien; Editing by Dan Grebler

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