Banco Santander Chile : Weekly Market Outlook - January 17, 2020

MARKET OUTLOOK

Tranquility in the markets after signing agreement and GDP of China

Cautious optimism after signing phase one of the trade agreement. China committed to the purchase of US goods and services for a total of US $ 200 bn over a period of two years and improve the protection of intellectual property. On the other hand, the USA noted that no further tariffs will be lowered until phase two of theagreement is completed.

China's growth stabilizes at 6% in 4Q19. The GDP of 2019 reached a growth of 6.1% y / y, its slowest pace in 30 years. This performance was affected by the commercial conflict, weak investment, despite government efforts to stimulate the economy. In2020, policies to mitigate the slowdown are likely to be maintained.

Government announced substantive changes to the pension reform. The Executive's new proposal contemplates an additional contribution of 6% managed entirely by an autonomous public entity. Part of this contribution will finance the new distribution pillar (Collective Solidarity Savings), which seeks to guarantee pensions above the poverty line to those who have contributed a minimum of years. In the short term, the Treasury would finance collective savings for an amount close to US$ 800 million.

CLAUDIO SOTO

Chief Economist [e-mail]

GABRIEL CESTAU Economist [e-mail]

SINDY OLEA

Economist [e-mail]

MIGUEL SANTANA Economist [e-mail]

FABIÁN SEPÚLVEDA Economist [e-mail]

MARKET OUTLOOK: January 13 to January 17, 2020

Cautious optimism after signing phase one of the trade agreement.

The US indicated that it would not reduce tariffs until phase two of the agreement.

During this week the phase one trade agreement between China and the US was signed, which commits a reduction of tariffs - from 15% to 7.5% - by the US. to Chinese goods equivalent to US $ 120 bn. On the other hand, the Asian giant committed to the purchase of US goods and services for a total of US $ 200 bn over a period of two years. Imports will be focused on manufacturing, agricultural, energy and services. Likewise, China should increase the safeguards to improve the protection of intellectual property.

The administration of President Trump said that no more tariffs will be lowered until phase two of the agreement is completed and ensuring compliance with phase one. The negotiations of this next stage could generate a renewed volatility in the financial markets, even beyond the presidential elections of November in the USA.

On the last day, the statements of a trade commissioner of the European Union warned about whether the agreement signed this week was compatible with the rules of the World Trade Organization (WTO). He also noted that a case will be raised in the WTO if necessary, which could generate additional uncertainty to the negotiations between the two powers.

International exchanges tended to rise marginally after the signing of the agreement - except for the Chinese stock market - and the dollar appreciated globally. The US stock market increased above its peers due to the first publications of corporate results in 4Q19, which have shown solid gains in the banking sector

Graph 1: International exchanges (Index 100 = Aug 19)

115
110
105
100
95
Aug-19	Sep-19	Oct-19	Nov-19	Dec-19	Jan-20
	Eurozone	MSCI EM		US S&P	China

Source: Bloomberg and Santander

China's growth stabilizes at 6% in 4Q19

China's GDP for the fourth quarter of 2019 was 6% y / y, in line with what was expected by the Bloomberg survey. With this result, last year it reached a growth of 6.1% y / y, its lower performance since the '90s, affected by the commercial conflict and the weakness of the investment, despite the government's efforts to stimulate the economy.

Meanwhile, the December foreign trade data was positive and greatly surprised the market. Exports grew 7.6% y / y versus the expected 2.9%, while imports increased 16.3% y / y, above

2

MARKET OUTLOOK: January 13 to January 17, 2020

9.6% of the surveys. This result boosted copper more than 2%, trading at levels close to US $ 2.9 / lb. In the same direction, industrial production and retail sales also presented a good result.

Additional contribution of 6% will contribute to individual accounts and new Collective Savings

Proposal contemplates an immediate increase for those who have contributed a minimum of years.

Government would contribute US $ 800 million for the initial financing of Collective Savings.

Graph 2: China. Foreign trade and GDP	Graph 3: China. Retail sales and industrial
(%, rolling 3 months	production (%, annual var)

30		7.0	20		Retail sales
20		6.8	18		Industrial production
10			15
0		6.6	13
-10		6.4	10
-20	Exports		8
	6.2
-30		5
Imports
-40	GDP (RHS)	6.0	3
Jan-15	Sep-16	May-18	Jan-11	Jul-13	Jan-16	Jul-18

Source: Bloomberg and Santander

Source: Bloomberg and Santander

The Government announces new pension system reform: additional contribution of 6% will be administered by public entity

Similar to what happened with the Tax Modernization, the Government announced substantive changes to the project that reforms the Pension System. Previously the project contemplated an increase in the contribution of 4% of the salary, which went entirely to the individual account of each member, the new proposal contemplates an increase of 6% paid by the employer.

Of the additional contribution, 3% will go to an individual account of each worker, 2.8% will finance the new Solidary Collective Savings (ACS) and 0.2% will go to a dependency insurance. All these funds will be managed by a new independent public entity.

The new pension system will have three pillars: (i) individual savings constituted by the mandatory contribution of 13% and the voluntary pension contributions of each worker; (ii) solidarity pillar financed by the State (Basic Solidarity Pension and Solidarity Pension Contribution); and (iii) and the new distribution component, called Solidarity Collective Savings (SCS).

This last pillar - which is the main novelty regarding the current system and the previous proposal of the Government - would improve both current and future pensions. Specifically, the proposal includes immediately increasing the pensions of women who have contributed at least eight years in 2.5 UF and those of men, who have done so for 12 years, in 2 UF. It also includes a contribution to ensure that every person who has contributed at least 30 years has a pension greater than or equal to the current minimum wage (indexed to inflation).

Although the fiscal impact of the new proposal is not yet reported, the Government has already announced that in order to finance the SCS in the short term it will make a contribution close to US $ 800 million. According to some press reports, this would be achieved through a loan, which will be repaid by future contributions and so will not impact the fiscal deficit.

In the long term, the payment of contributions that the State will have to make as an employer will become relevant. Extrapolating the estimate made by the Government in the Financial Report of the previous project, this regime would reach US $ 700 million annually, equivalent to about 0.25% of GDP.

3

MARKET OUTLOOK: January 13 to January 17, 2020

Market summary

		Exchange rates			Exchanges			10Y Rates
		Weekly	Accum.	Accum.	Weekly	Accum.	Accum.		Weekly	Accum.	Accum.
	Level	Var.	Jan.20	2019	Var.	Jan.20	2019	Level	Var.	Jan.20	2019
			%			%				bp
US	97.6	-0.3	-0.9	-1.3	1.9	3.3	33.8	1.81	-1	-7	-93
Eurozone	1.1	0.3	1.0	3.1	0.3	1.4	27.3	-0.21	-1	-2	-45
UK	1.3	0.3	0.7	-2.4	1.2	1.2	14.1	0.64	-13	-23	-63
Japan	110.2	0.6	1.2	-0.1	0.0	0.8	16.2	0.01	1	3	1
Chile	771.3	-0.2	2.5	11.3	-2.4	4.4	-4.5	3.30	-17	16	-93
Argentina	60.0	0.6	0.2	59.3	0.0	2.6	41.1	21.6	-33	56	1,007
Brazil	4.2	2.1	4.0	7.7	1.9	1.8	33.9	6.88	11	8	-239
Mexico	18.7	-0.2	-1.0	-4.6	1.7	4.0	9.5	6.84	5	-1	-191
Colombia	3,321	1.6	1.2	2.3	-0.2	-0.6	24.6	5.81	-5	-27	-91
Peru	3.3	-0.3	0.2	-1.4	1.8	2.5	0.5	4.10	-2	-11	-151
China	6.9	-0.9	-1.8	-0.2	-0.2	1.8	38.0	3.15	1	-3	-12
Turkey	5.9	0.4	-0.8	11.9	2.4	5.9	34.3	10.8	-52	-124	-521
South Africa	14.5	0.7	2.5	0.3	2.9	2.6	13.4	8.18	-4	-6	-72
India	71.1	0.2	-0.4	1.6	0.8	0.9	16.3	6.62	4	8	-77
Indonesia	13,630	-0.9	-2.1	-6.4	0.3	-0.1	1.6	6.83	-11	-27	-116
Copper	285.2	1.4	0.6	6.3
Oil	58.5	-0.9	-5.2	29.0

4

MARKET OUTLOOK: January 13 to January 17, 2020

Data published this week

DAY

COUNTRY INDICATOR

PERIOD

PREVIOUS ESTIMATION ACTUAL

MONDAY 13

TUESDAY 14	US	Inflation m/m	December	0.3%	0.3%	0.2%
	US	Inflation y/y	December	2.1%	2.4%	2.3%
	US	Underlying inflation y/y	December	2.3%	2.3%	2.3%
	China	Exports	December	-1.3%	2.9%	7.6%
	China	Imports	December	0.3%	9.6%	16.3%
	China	Commercial balance	December	$38.73b	$45.70b	$46.79b
WEDNESDAY 15	US	Producer Price index y/y	December	1.1%	1.3%	1.3%
	US	Manufacuring survey (Empire State)	January	3.5	3.6	4.8
	Eurozone	Industrial production y/y	November	-2.2%	-1.0%	-1.5%
THURSDAY 16	US	Business perspectives Fed Philadelphia	January	0.3	3.8	17.0
	US	Retail sales m/m	December	0.2%	0.3%	0.3%
	US	Unemployment requests (thouand)		214k	218k	204k
	China	GDP	4Q	6.0%	6.0%	6.0%
	China	Industrial production y/y	December	6.2%	5.9%	6.9%
	China	Retail sales	December	8.0%	7.9%	8.0%
FRIDAY 17	US	Housing commenced (thousands)	December	1365k	1380k	1608k
	US	Industrial production m/m	December	1.1%	-0.2%	-0.3%
	US	Consumer confidence U. of Michigan		99.3	99.3	99.1
	US	Employment survey (JOLTS)	November	7267	7250	6800
	Eurozone	Infllation y/y	December	1.3%	1.3%	1.3%
	Eurozone	Inflation m/m	December	0.3%	0.3%	0.3%
	Eurozone	Underlying inflation y/y	December	1.3%	1.3%	1.3%

Estimates correspond to the market consensus according to Bloomberg, while figures in red are Santander estimates

5

MARKET OUTLOOK: January 13 to January 17, 2020

Data to be published next week

DAY	COUNTRY	INDICATOR	PERIOD	PREVIOUS	ESTIMATE
MONDAY 20	Global	Update WEO January 2020
TUESDAY 21	Eurozone	Survey ZEW	January	11.2
WEDNESDAY 22	US	Activity index- Fed Chicago	December	0.56	0.15
THURSDAY 23	US	Unemployment requests (thousand)		204k	214k
	Eurozone	Reference rate BCE	January	-0.500%	-0.500%
	Eurozone	Consumer confidence	January	-8.1	-7.6

FRIDAY 24	Chile
	US
	US
	Eurozone
	Eurozone

Financial operator survey (BCCh) PMI Markit Services

PMI Markit manufacturering PMI Markit manufacturering PMI Markit Servicios

January	52.8	52.5
January	52.4	52.6
January	46.3	46.8
January	52.8	52.8

Estimates correspond to the market consensus according to Bloomberg, while figures in red are Santander estimates

6

MARKET OUTLOOK: January 13 to January 17, 2020

CONTACTO

(56 2) 2320 1021 Access our reports at:

http://saladecomunicacion.santander.cl/estudios

This report has been prepared with the sole objective of offering information to Banco Santander Chile clients. It is not a request or offer to buy or sell any of the financial shares or assets mentioned within it, whose contributions are variable, which is the reason why it is not possible to warrant that the past or present profitability will repeat in the future. The current information and that in which it is based, have been obtained from sources we deem trustworthy. Nevertheless, this does not guarantee that it is exact or complete. Projections and estimates presented here have been elaborated by our working team, supported by the best available tools; which does not imply these are effectively fulfilled. All opinions and expressions contained within this report may not be updated necessarily and are subject to modification without prior notice. The result of any financial operation based on the information presented here will require analysis on behalf of the client and is the sole responsibility of the person who conducts it.

7