Brazil's election triggers 13.8% stock plunge, real crashes to 1999 lows.

The Bovespa plunged 13.88% on Monday —enough to trigger the São Paulo Stock Exchange's automatic circuit breaker— and the Brazilian real lost as much as 12.6% against the dollar in its worst session since January 1999, after Luiz Inácio Lula da Silva defeated Flavio Bolsonaro in the runoff and secured an unprecedented fourth term. The shock was not confined to Brazil: the tremor spread immediately to Santiago, where the IPSA closed at nearly five-month lows, retreating 1.59% to 10,575.69 points and trimming its year-to-date return to a meager 0.9%. The session turned the Brazilian election into the dominant economic story of the day, effectively erasing any other local agenda and forcing investors, corporate treasurers, and the Central Bank itself to recalibrate their positions.

The transmission of the malaise was direct and selective. Latam Airlines, the company with the greatest operational exposure to Brazil —where it holds roughly 40% of regional market share— plunged more than 9% at the open before paring losses to close down 5.08%. According to Jorge Tolosa, head of equity strategy at Vector Capital, the carrier accounted for roughly 75% of total volume traded on the local exchange, with amounts exceeding $106 billion, almost half of total flow in domestic equities. Enel Américas shed 8.58%, also slipping into negative territory year-to-date. Analysts warn that the real's depreciation and the rise in Brazilian country risk —five-year credit default swaps jumped from 120 to 151.67 basis points according to S&P Global Market Intelligence— will continue to weigh on these companies' results in coming quarters, though some have currency hedging mechanisms that could cushion part of the impact. In New York, ADRs of major Brazilian banks suffered even more dramatic losses: Bradesco sank 28% and Itaú gave up more than 20%, while Petrobras fell about 14%. Brazil's Treasury canceled government bond auctions scheduled for this week, a signal of the magnitude of the financial disarray unleashed by the election result.

In the local FX market, the dollar brushed $999 during the session —its highest level in more than a year— before reversing course to close at $989, down $7 from Friday. Sebastián Moncada, of XTB, noted that the initial surge had a regional origin: nervousness around the real spilled over to the Chilean peso and other Latin American currencies. The subsequent pullback partly reflects profit-taking after several consecutive days of gains. Retail, however, is already warning that FX pressure —even if it moderates— adds strain to a sector operating in a weak-demand environment. Economists consulted by Diario Financiero note that any eventual passthrough to inflation would be more contained precisely because of that fragility in domestic demand, which complicates the Central Bank's analysis ahead of its meeting on Tuesday, where the GPM recommends holding the rate at 4.5%, acknowledging "opposing forces" between the weakness of the domestic economy and external inflationary pressures. The Federal Reserve also meets on Wednesday, and with both decisions widely anticipated, markets will focus on the tone of the statements rather than the rate moves themselves.

As markets digested the Brazilian shock, the Fondo E scandal continued to escalate on the institutional front. Pension Superintendent Joaquín Cortez appeared before the Chamber's Labor Committee to detail that the interest rate swaps used by AFPs to extend portfolio duration have grown since 2023, driving the Fondo E's total duration to a high of 18 years between April and June of this year. The position in foreign rate derivatives had accumulated a negative mark-to-market of US$10 billion as of the end of September. The Chamber unanimously approved the creation of an investigative commission on state oversight of the AFPs between 2018 and 2026, with a 60-day deadline to issue its report. The "herd effect" described in the analysis published in La Tercera —whereby the minimum guaranteed return incentivizes administrators to replicate similar strategies, concentrating systemic risk— was laid bare in brutal fashion, and the political pressure to establish accountability will only intensify.

In parallel, mining delivered one of the few genuinely positive stories of the day. Capstone Copper, the Toronto-listed Canadian firm, announced a US$3 billion investment plan in northern Chile aimed at doubling its copper output to approximately 300,000 tons per year by 2031, according to statements from COO James Whittaker. The news comes as the sector is going through a period of strong export dynamism and reinforces Chile's appeal as a long-term capital destination in critical minerals, an argument SOFOFA has been making to European ambassadors in the context of the implementation of the Advanced Framework Agreement with the European Union. The same business federation identified, after touring the country's 16 regions, that projects currently under environmental review could generate more than 170,000 direct jobs if they moved forward, lowering the unemployment rate from the current 9.6% —a level the IMF projects will not fall below 8% before 2031— to that threshold. Permitting bottlenecks and the lack of legal certainty remain the cross-cutting obstacles the private sector flags from Arica to Magallanes.

On the fiscal front, the government welcomed the fact that rating agencies maintained Chile's sovereign rating following the approval of the Budget Law, with new spokesperson Gonzalo Arenas stating that the country "has recovered the credibility of its fiscal policy." Minister Quiroz began negotiations to unblock the Budget in Congress. Meanwhile, the CMF set out via official letter how companies should account for the impact of the tax relief contained in the Reconstruction Law, modifying the criterion applied in 2014. On the institutional front, the Environmental Superintendency filed severe charges against ENAP Refinerías Aconcagua for manipulation of sulfur emissions data over three consecutive years, a case that adds regulatory complexity for the state-owned company at an already demanding moment.

What lies ahead will set the tone for the coming weeks: the Central Bank's decision on Tuesday, followed by the Fed's on Wednesday, will define the rate framework in which local markets operate heading into year-end. On Thursday, the INE will release employment figures for the July-September quarter, with expectations centered around 9.6% unemployment. And the IPSA's third-quarter earnings season —where SQM is shaping up as the dominant force, with the banking sector lacking the prominence of prior periods— will begin to deliver concrete data on how much Chilean companies have absorbed the deterioration in the external backdrop. The magnitude of today's losses in companies with Brazil exposure suggests that surprises, if there are any, could lean in the wrong direction.

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