Chile’s foreign reputation for sound fiscal management has survived the biggest social upheaval in a generation largely intact, market indicators show. The government says it now intends to cash in on that credibility.
The South American nation plans to issue $8.7 billion of bonds next year, of which $5.3 billion will be sold abroad, up from about $3 billion this year. Of those foreign bond sales, $3.3 billion will be in dollars and euros and the rest will be denominated in Chilean pesos but targeted at foreign institutional investors through a book-building process.
Social unrest has gripped Chile since Oct. 18, forcing the closure of hundreds of shops and delaying investment projects. Still, the government is benefiting from years of fiscal prudence that saw it put more than $15 billion into sovereign wealth funds. It is now drawing on the funds to boost pensions, health-care and create a minimum income, as well as borrowing more abroad.
“Any other country that had gone through a shock like this one would have already been downgraded one or two notches,” said Andres Perez, head of international finance at Chile’s Finance Ministry. “Current yields and spreads show a higher level of risk, but not enough for a downgrade.”
Chile’s bond spreads have widened an average of five basis points since Oct. 18, only marginally worse than the average of three basis points for emerging-market sovereigns.
Institutional investors
As Perez visited institutional investors in Asia and the U.S. in December to explain the social crisis and remind them of Chile’s financial strengths, he was struck by the high expectations the country has created.
There’s a consensus that Chile’s fiscal and monetary response has been “effective, fast and decisive in terms of its size,” Perez said in an interview in Santiago. “Then again, they say that this is what they expect of Chile.”
The government will boost spending by 9.8% in real terms next year as it tries to meet social demands. The increased expenditure is likely to continue, pushing public debt to 38% of gross domestic product by 2024 from less than 28% now, according to the government.
Perez said investors had asked about the higher debt load as well as the drafting of a new constitution and what it will mean for investment. Chileans are scheduled to vote April 26 on whether to draft a new constitution.
Back to normal
The boost in bond sales in foreign currency will only be temporary. In the following years, the government will return to its previous pattern of selling about 80% of bonds in local currency, Perez said.
While the economy has taken a hit from the protests, with economic activity contracting 5.4% month-on-month in October, market confidence has been recovering. The peso has strengthened 11% since Nov. 28 when the central bank announced an intervention, the best performance of any emerging-market currency.
Even with the higher debt loads and more fiscal spending, Perez is confident that credit rating companies will be able to take the long term view.
“As soon as spreads started to rise new foreign institutional investors have entered the market thinking that Chile was cheap,” Perez said. “This has helped to keep spreads low.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
