Chile Stocks Headed for Best Start to Year Since 1997 on Reform

(Bloomberg) -- Chile’s benchmark stock index is on track to post its biggest monthly gain since July 2023 and best start to a year since 1997 after Congress approved a long-awaited pension reform.

The IPSA is up 8.4% so far this month, hitting a record and on track for its seventh consecutive month of gains. The best performers are industrial group Empresas Copec SA, lithium producer Sociedad Química y Minera de Chile SA and retailer Cencosud SA.

Stocks leaped Thursday, posting their biggest daily gain since July, after lawmakers approved the pension reform, which will lift the assets under management of Chile’s largest institutional investors. The vote combines with signs of economic resilience in China, Chile’s largest export market. Add to that cheap valuations by historical standards and Chilean stocks were ready for a rally, Credicorp Capital analysts said in a report Friday.

“The IPSA reached a new high amidst figures in China that show some impact of the stimulus package,” wrote Daniel Velandia and Rodrigo Godoy, who have an overweight rating on local shares. “The recent approval of the pension reform is good news since it shows a broad agreement between parliament and the government on a matter of great relevance.”

The gain in the IPSA is part of a more modest rally in emerging market stocks, with the MSCI EM Index up 1.8% so far this month.

The pension reform, which includes increased employer contributions to retirement accounts, will boost investments in local equities by $300 million in the long term, Godoy wrote in another note Thursday.

The IPSA index’s price-to-earnings ratio is currently at 10.4, little changed over the past year, but significantly below the pre-pandemic levels.

Credicorp still sees a relatively attractive entry point for the IPSA, forecasting the index will reach around 7,750 by year end. Their top picks include Cencosud SA and Enel Chile SA.

--With assistance from Vinícius Andrade and Srinivasan Sivabalan.