Chilean stocks plunge as government's reform victory fails to soothe markets

The Santiago Stock Exchange closed below 11,000 points today, posting its steepest decline in more than ten weeks, on a session in which the IPSA decoupled entirely from global markets —where the S&P 500 gained 0.26% following a US inflation print in line with expectations— to reflect, instead, a combination of external and domestic pressures that starkly defines the current moment for the Chilean economy. The dollar held firm without breaking below $910, anchored by Iran's new "offensive doctrine" that unnerved international markets, while copper retreated 0.3% in London, erasing morning gains. The US inflation data, with headline CPI at 3.4% annual and core at 2.5%, pushed the implied probability that the Federal Reserve holds its rate in the 3.50% to 3.75% range in September to 60%, according to the CME FedWatch tool. For Chile, that higher-for-longer scenario has direct implications for the financing costs of an economy that has posted a cumulative 0.7% contraction through May, barely tempered by the 2.4% rebound recorded in June.

The market drop stands in contrast to the government's biggest legislative achievement of the year to date. Finance Minister Jorge Quiroz closed the parliamentary process on the sweeping reconstruction and economic reactivation reform following the Senate's approval of the three suppressive vetoes submitted by the Executive, which stripped from the text provisions on compound interest, the financial right to be forgotten, and the 30-day payment guarantee to SMEs. The initiative won cross-party backing for these corrections —24 votes in favor of the veto on compound interest, 23 for the right to be forgotten— in a signal Quiroz described as "a very mature outcome from Congress." The Retail Financial Association welcomed the decision as "sensible and prudent," recalling that the Central Bank had warned about the systemic risk of banning interest-on-interest charges in the credit market. The text now hinges exclusively on the Constitutional Court, where the opposition filed challenges regarding tax invariability provisions and amendments to the Environmental Rating Resolution. From Sofofa, whose president estimates that the corporate tax cut contemplated in the reform could generate up to 210,000 additional jobs over four years, approval was received as a signal that the country is capable of building agreements and turning them into results, though it warned that a law alone does not produce growth.

That tension between political signals and market reality is the backdrop against which the Chilean economy moves. Financial operators, according to the Central Bank's latest Financial Operators Survey, did not adjust their expectations following the monetary policy meeting: they project the Monetary Policy Rate at 4.5% at least through December of this year, monthly inflation of 0.3% in August, and an exchange rate around $915 by mid-month. The consensus is one of stability, not dynamism.

Against that backdrop, the government's decision to retain 100% of Codelco's 2025 earnings, valued at just over US$2.4 billion, takes on particular significance. President Kast spoke of "recovering national pride" and the Economy Minister emphasized that this is the first time in more than 50 years of history of the state-owned miner that the State has authorized the full retention of a fiscal year's residual earnings. However, an analysis published today notes that close to US$2 billion of those earnings correspond to the accounting valuation of Codelco's stake in Novandino Litio —the company formed with SQM to develop the Salar de Atacama— and that, therefore, the impact on the company's effective cash position is significantly smaller than the announcement suggests. Codelco carries debt in excess of US$25 billion, and the balance sheet strengthening is real but limited.

In the forestry sector, Arauco —the Angelini group's arm that trades through its parent Empresas Copec— reported earnings of US$71 million in the first half, reversing losses of US$10 million in the same period of 2025, with revenues of US$3.081 billion and adjusted EBITDA of US$667 million. The second quarter was particularly solid, with earnings of US$121 million, contrasting with losses of US$49 million in the same period a year earlier. The company acknowledged that the war in the Middle East weighed on sawn timber sales for several months, though it flagged a recent recovery. To sustain growth, Empresas Copec agreed to inject an additional US$450 million into Arauco as part of the mega forestry project in Brazil, with an extraordinary shareholders' meeting called for September 10. On the local exchange, Falabella held up better than the broader index after publishing its results: the retail chain posted EBITDA of $506.033 billion for the quarter, up 7% year-on-year, with operating profits marking an all-time record for the second quarter. Nevertheless, the company cut its global headcount by more than 3,000 workers versus December 2025, with the sharpest reduction in Peru. A block trade for nearly $160 billion executed by LarrainVial made Falabella the most-traded stock of the session.

The AFPs, for their part, made SQM-B and Falabella their top buying positions in July, while divesting from Copec and Cencosud, according to data published today by Diario Financiero. In infrastructure, the tender for the Santiago-Colina-Los Andes Route 57 drew four bids —Sacyr, VíasChile, Acciona-Strabag and CHEC— but was marred by a controversy involving Chinese firm CHEC, whose economic bid appeared partially outside the corresponding envelope at the close of the ceremony, drawing objections from the other participants. The opening of economic bids is scheduled for September 4 and the award for the fourth quarter of the year. The Fiscalía Nacional Económica, meanwhile, unconditionally approved Kimberly-Clark's acquisition of Kenvue —a transaction valued at around US$48.7 billion globally— after concluding that the competitive overlap in Chile is limited to daily feminine liners.

In the coming days, attention will center on the Constitutional Court, which must rule on the challenges against the sweeping reform in a decision that could alter the effective scope of the law. In parallel, the drafting of the 2027 Budget is beginning to take shape: Health Minister May Chomalí announced an increase of between 4% and 5% for her portfolio, in a fiscal context where the historic surge in fuel prices allowed the Treasury to save nearly US$1.9 billion, though a study by OCEC UDP warns of the need to reform the Mepco mechanism to make it more robust against abrupt shocks. The underlying question —whether the approved sweeping reform can translate into concrete investment before the electoral cycle absorbs the political agenda— remains unanswered.

**Arauco / Empresas Copec (Santiago: COPEC)** — Arauco reversed losses and reported earnings of US$71 million in the first half of 2026, versus a loss of US$10 million in the same period of 2025, with revenues of US$3.081 billion. Its parent, Empresas Copec, agreed to inject an additional US$450 million to finance the mega forestry project in Brazil, with shareholder approval scheduled for September 10.

**Antofagasta plc (LSE: ANTO)** — Juan Claro, non-executive director since 2005 and former chairman of the CPC and Sofofa, will step down from the board of the Luksic group's mining parent on August 31, without receiving any severance payment. Antofagasta plc, listed in London and one of the world's largest copper producers, also announced changes to the composition of its corporate governance committees effective September 1.

**Falabella (Santiago: FALABELLA)** — The retail group posted EBITDA of $506.033 billion in the second quarter of 2026, a 7% year-on-year advance and an all-time record for the period, with operations in Chile, Peru, Colombia and Brazil. The company cut its global headcount by more than 3,000 workers relative to December 2025, primarily in Peru, as part of an operational simplification process.