Nov 14, 2019

Chile's grim economic outlook

A demonstrator throws a stone at riot police on Nov. 13, 2019. Photo: Johan Ordonez/AFP via Getty Images

The unrest in Chile could not have come at a worse time for the country's investors, who had already been facing a wave of economic uncertainty.

What's happening: The economy slowed from 4% growth last year to less than 2% in each of the first two quarters of 2019.

  • While Q3's reading could improve, the disruption from ongoing protests is likely to significantly dent any recovery hopes in Q4 and make the IMF's 2.5% target this year unlikely.

Chile's central bank is facing a lose-lose scenario.

  • The central bank already has cut rates by 125 basis points this year to a record low of 1.75%.
  • Plus, with Chile's peso falling to its weakest level on record against the dollar — more than 800 pesos per dollar, becoming the world's second weakest EM currency behind Argentina — inflation threatens to make an unwelcome comeback.

Between the lines: With that in mind, it will be difficult for the central bank to cut rates to help stimulate the decelerating economy, Win Thin, global head of currency strategy at Brown Brothers Harriman, writes in a note to clients.

Chilean stocks have taken it on the chin. So far this year, MSCI's Chile index, typically a stable performer, has fallen nearly 26% year to date, while MSCI's overall emerging market index has risen nearly 10%.

The bottom line: "While we would normally expect Chilean equities to start outperforming, we cannot ignore the negative impact of prolonged political uncertainty and so expect the underperformance to continue," Thin says.

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Search teams find debris near where Chilean Air Force plane vanished

Relatives of the Chilean Air Force crash victims at Chabunco army base in Punta Arenas, Chile, on Wednesday. Photo: Joel Estay/AFP via Getty Images

Search teams have found debris believed to be from a Chilean military cargo plane that vanished while carrying 38 people en route to Antarctica, Chile's Air Force said in a statement Wednesday.

The big picture: Officials believe the plane crashed while flying to the country's base in the icy continent. The wreckage was found floating in the "treacherous" waters of Drake's Passage, between Antarctica and Chile, 19 miles from where the C-130 Hercules plane last made contact on Tuesday, AP reports.

G0 deeper: Chilean Air Force plane carrying 38 crashes on way to Antarctica

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Trump may get the weak dollar he wants

Illustration: Sarah Grillo/Axios

The dollar has fallen every day this week, notching a cumulative loss of around 1% since President Trump complained on Twitter about its strength and took aim at two countries with weak currencies.

Why it matters: The decline may continue, reducing the dollar's strength in 2020, experts say.

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The end of the magic stock market

Illustration: Aïda Amer/Axios

The stock market's magnificent bounce in 2019 has been hard to explain and fueled largely by factors like stock buybacks and central bank easing.

The big picture: But to see an increase in their share prices next year, U.S. companies will have to actually increase their earnings, experts say, a factor that's been notably absent from this year's rally.

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