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JPMorgan Acknowledge Risks Of BCCh Ending Reserve Accumulation Program

CHILE
  • JPMorgan have been UW CLP since June, on the back of expectations of an aggressive easing cycle, weaker copper prospects, and Central Bank programs likely to add pressure higher to USD/CLP. The peso’s underperformance this past week has raised concerns around the possibility of BCCh putting an end to its reserve accumulation program, which started mid-June, according to JPM. This draws parallels to the experience of October 2021, when BCCh’s reserve accumulation program was ended before reaching target.
  • On the one hand, CLP’s underperformance relative to its peers currently is similar to the one observed before October 13, 2021. BCCh has also expressed concern around the currency’s depreciation, evident in their September decision to cut the monetary policy rate by 75bp and not 100bp.
  • On the other hand, the Treasury has been significantly less active in the USD market, with practically nil US dollar sales in October (vs. an average of USD 4bn in 3Q21), and copper is materially weaker, with prices 25% lower than in October 2021, suggesting there is now better justification for a weaker currency.
  • JPMorgan’s valuation models point to some cheapness in CLP, but contained. Short-term valuation models have yet to trigger any signals. It is worth keeping an eye on foreign positioning, which is short CLP, although not yet at the September 2022 lows. For now, JPM are keeping their UW CLP, as we believe it remains a good EM candidate for shorts amid a more volatile global backdrop.
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