BlackRock, Goldman Dismiss Chile Billionaire Return to Power

Updated on
  • Chilean local bonds returned 17% during Pinera’s first term
  • Billionaire ex-president leads in polls ahead of Sunday’s vote

Sebastian Pinera during a campaign rally in Santiago, on Nov. 16.

Photographer: Cristobal Olivares/Bloomberg

Sebastian Pinera, the Chilean billionaire who’s the front-runner in Sunday’s election, presided over the most rewarding stretch for debt investors in the nation. That doesn’t mean Wall Street is welcoming him back.

Although Pinera, who previously served as president from 2010 to 2014, may usher in more market-friendly policies than incumbent Michelle Bachelet, that may not lead to fatter bond market returns, according to money managers including BlackRock Inc. and Goldman Sachs Asset Management.

For one, while optimists point to the impressive run for local bonds under Pinera’s watch -- peso-denominated notes returned 17 percent compared with 6.4 percent under Bachelet -- the former banking executive also benefited from the commodities supercycle.

"It has less to do with him than commodities," said Pablo Goldberg, an emerging-market portfolio manager at BlackRock. "I’m more concerned about what happens with rates, what happens with copper prices, inflation and China’s property sector. Elections don’t really matter that much."

Chile is the world’s largest producer of copper, whose price is close to the highest since July 2014, sparking concern that the commodity could be at risk of topping out. The correlation coefficient between local Chilean notes and copper is near the highest level since October 2016. A downturn in Chinese home-buying, which has helped fuel copper’s surge, is an additional red flag.

Whoever wins is unlikely to bring about significant changes to Chile’s fiscal deficit and reputation as Latin America’s most tranquil market. One sign: the peso and local bonds were little changed on Friday, two days before the election. Challengers include Alejandro Guillier and former television host Beatriz Sanchez.

"It’s not like Brazil, where center-left Dilma to center-right Temer is a huge deviation," said Samy Muaddi, a Baltimore-based money manager at T. Rowe Price Group, who has an overweight rating on Chilean credit. "In Chile, fiscal institutions trump political party."

Here’s what other traders are focused on:

  • The best market outcome would be the continuity of Bachelet’s policies. With Pinera, rising rates would be "fatal for the fixed-income market," said Francisco Sanz, a trader at Scotiabank Sud Americano in Santiago.
  • Angus Bell, who helps oversee about $45 billion for Goldman Sachs Asset Management’s emerging-market debt team, says he’s watching for more opportunities to trade local Chilean debt in the next year. He sees the nation’s dollar bonds priced tightly and doesn’t expect Pinera to lead to "meaningful change."
  • A Pinera victory would bring pro-growth and market-friendly policies, "which would be translated eventually into higher inflation and interest rates," said Gregorio Velasco, a portfolio manager at BCI Asset Management in Santiago.

— With assistance by Carlos Torres

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