Chile's blue chip IPSA index receded from new life highs on Friday, tracking US bourse losses, while the peso hit 19-month highs as banks sold US dollars to close positions, traders said. The IPSA index fell 0.69 percent to close at 3,756.18 points, compared to Thursday's close of 3,782.53 points - which a new all time high. Friday was the last day of trading ahead of Chile's presidential election on Sunday.
But traders said Friday's losses were not influenced by the imminent vote. A win by the market favourite, conservative billionaire Sebastian Pinera, would likely give the bourse extra momentum, while a win by his rival Eduardo Frei of the center-left ruling coalition could prompt a light near-term sell-off, analysts say.
"The negative trading on the bourse today was principally due to the US market falling after J.P. Morgan showed weak (fourth-quarter) results," said Francisco Hazbun, a trader with Tanner Corredores de Bolsa. "Profit-taking only deepened losses on the bourse."
J.P. Morgan Chase & Co on Friday reported fourth-quarter loan losses that raised concerns about earnings for the banking industry. "A Pinera win would be well-received by the bourse," Hazbun said. "If Frei wins market speculators will perhaps book profits, or the bourse could see a sell-off, but it would be minimal."
Dragging the bourse lower were shares of Soquimich, Chile's leading exporter of fertiliser and the world's biggest producer of iodine and lithium, falling 1.82 percent to close at 20,680 pesos per share. Chilean iron and steel producer CAP closed 0.64 percent lower at 16,901 pesos, while industrial conglomerate Copec, the heaviest-weighted stock on the bourse, fell 0.36 percent to 8,165 pesos per share.
Shares of Chile-based regional energy group Enersis fell 0.96 percent to 227.5 pesos per share, while Chile's leading electricity generator Endesa fell 1.12 percent to 892 pesos per share. Chile's flagship airline LAN extended its recent slide, falling 1.24 percent to 8,325 pesos. Earlier in the day Chile's peso closed at 19-month highs as banks sold US dollars to close positions ahead of a long weekend in the United States.
Traders said Sunday's presidential election did not play a role in Friday's currency trading. The peso appreciated nearly 1 percent despite wider dollar strength and lower copper prices. Chile is the world's top copper producer. "The fact that the US market is closed on Monday, the world's largest currency market, encouraged banks to liquidate dollar positions," a local trader said.
The peso strengthened 0.92 percent to close at 488.70/489.20 per dollar, compared with Thursday's close of 493.20/493.50. Chile's peso has appreciated sharply in recent months, prompting Central Bank President Jose De Gregorio to warn of possible intervention to tame the currency rally.
However, De Gregorio has praised the country's flexible exchange rate that helped the country cope with the global financial crisis and last week warned that any attempt to fix it would be "extremely dangerous." De Gregorio's comments could signal the peso has further room to appreciate in 2010. "With respect to the elections, the market doesn't see major changes to the exchange rate, regardless of the outcome," one local trader said. The peso has gained 3.74 percent this year after surging more than 26 percent against the dollar in 2009.