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AFP Recommendations Boosts Peso Volatility

CHILE

A very strong day for the Peso yesterday saw USDCLP trade down to 720.00. Surging Copper prices and vaccine optimism have been the driving force behind the Peso's rally, however, analysts have attributed some further pension fund advisor recommendations to yesterday's outperformance.

  • The local pension fund advisor Felices y Forrados (F&F) recommended Wednesday night to switch allocations to 30% Fund A (predominantly foreign equities)/70% Fund E (predominantly local bonds) from 40% Fund A/60%Fund E (Dec 1).
  • The change comes in the middle of the second round of pension withdrawals, which has also supported the CLP as the AFPs are likely to sell liquid global assets to meet withdrawals.
  • Of note, a new bill has been introduced to Congress which is aiming to limit the amount of changes individuals can make in the AFPs, given the strong impact F&F has on the market.
  • The Government has been vocal that the recommendations provoke unnecessary volatility to financial markets and have no benefit to the economy.
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